In the Upper Tribunal Lands Chamber case of Odime Ltd v Bath Building (Swindon) Management Co Ltd and Others  the appellant was the landlord of a four-storey building containing l3 flats let on leases.
The landlord had an obligation under the leases to “keep the Building including the Demised Premises insured to its full reinstatement value against loss or damage by fire and the usual comprehensive risks in accordance with the Council of Mortgage Lenders (“CML”) recommendations from time to time and such other risks as the landlord may in its reasonable discretion think fit to insure against”.
The insurance obtained by the appellant’s insurance broker placed the building in “Zone B”, which carried the same risk as central London and other similar places.
Furthermore, the RICS Code, said serious consideration should be directed to the taking out terrorism insurance.
The respondents here were the flat management company and 11 of the tenants.
They disputed the cost of terrorism insurance for the years 2010/11, 2011/12 and 2012/13 by an application to the Leasehold Valuation Tribunal (“LVT”) under section 27A of the lord and Tenant Act 1985.
The LVT disallowed that item on the ground that terrorism insurance was not a matter covered by the insuring obligations in the leases or in respect of which the appellant had exercised its “reasonable discretion”.
The Upper Tribunal ruled that the “usual comprehensive risks” against which the landlord was obliged to insure included terrorism as per the CML recommendations.
Where those recommendations referred to insuring against explosion, that included insuring against a terrorist attack. In its ordinary meaning “explosion” included explosions caused by terrorism.
The obligation was to insure against explosion, without differentiation being made between any particular methods by which an explosion might be caused.
If the tribunal were incorrect to think the above, the appellant was nevertheless entitled in the exercise of its power to insure against “such other risks as the Landlord may in its reasonable discretion think fit to insure against”, to insure against terrorism.
The test was whether, in the circumstances, a lawful decision had been reached falling within a range of reasonable decisions – as opposed to being perverse.
The absence of any particular terrorist threat did not make the appellant’s decision to insure against terrorism necessarily unreasonable.
The exercise of a discretion in accordance with the RICS Code was a reasonable exercise of that discretion.
It followed that the appellant had been entitled to recover the cost of insuring against terrorism, either because it had to obtain such insurance under the terms of the leases, or, because it’s decision to do so had been a proper and reasonable exercise of it’s discretion under the leases.
This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.