6 Federation of Private Residents’ Associations Newsletter
Issue No. 90 Autumn 2009
‘Ask the FPRA’ continued from page fi ve FPRA consultant Yashmin Mistry replies:
Insurance is a common area of dispute between landlords and tenants. I have not seen a copy of the lease and therefore am relying on your interpretation of the lease in that the landlord is responsible for arranging the insurance at the development; the below advice is therefore based on this assumption. In this situation (the landlord recovers the costs of the insurance premiums through the service charge account) such payments are subject to the same kinds of challenges as other “service charges”.
A problem that arises in this particular instance of service charges for insurance is that landlords are often paid large commission for selecting particular insurers. The insurance company then recovers the costs of the commission via higher premium payments which will ultimately be borne by the tenants. In this situation, a distinction should be drawn between commissions which are, in effect, payments to the landlord for providing a service on behalf of the insurance company, and simple profi t-making. The former can be kept by the landlord but the latter should be credited to the leaseholders. In the event the tenants feel the insurance premiums are excessive and unreasonable, they will need to make an application to the LVT under Section 27A of the Landlord and Tenant Act 1985. Under such an application that LVT can be requested to determine on the following points: • The person by whom it is payable; • The person to whom it is payable; • The amount which is payable; • The date on, or by which, it is payable; and • The manner in which it is payable. Before making an application to the LVT, the tenants will need to be in a position to be able to provide “like for like” quotations to be able to demonstrate the gross variation in insurance premium costs.
Also, some general principles to bear in mind when making reasonableness applications to the LVT are: • There is no requirement that the insurance premium must be the cheapest available; on the other hand the landlord cannot charge a fi gure that is grossly out of line with the market norms;
• The correct perspective when examining reasonableness is that of the landlord and not the tenants;
• Any comparisons (i.e. alternative quotes) must be on a “like for like” basis;
• Nature and location of the development will be factors that are taken into consideration;
Generally speaking also, from experience, LVTs do not seem to be impressed by evidence from tenants that they could obtain a number of quotations 20-30 per cent less than the premium imposed by the insurer. Conversely, where the landlord is charging over twice the size of quotations obtained by tenants, the LVT has also almost always found those to be excessive.
Challenging insurance premiums is a complex area as there are many factors that need to be taken into consideration. Full and proper legal advice should be sought as your solicitor will need to review the lease, the quotations obtained and consider the different factors involved in making a reasonableness application to the LVT.
FAIR RECOMPENSE Q A
I manage our block of four fl ats and it has been agreed that I will get some recompense for this. The question is: how much? Do you have any advice on this? It was suggested in a recent meeting that it could be an hourly rate, although I’m unsure how much! Bob Smytherman, FPRA chairman, replies: The issue of recompense for the work carried out by Directors and Offi cers of Residential Management Companies can be a sensitive issue as many of us agree to become Directors on the understanding the role is a voluntary one. Yet as we all know this can take up a large amount of time and often additional cost as well. Your email does not state who has agreed to the recompense but, based on the assumption this is the other three fl ats in your block, I would suggest that there are two options: one which we adopt in my block is to provide an ‘honorarium’ agreed by residents at an AGM, or, alternatively, you can agree between yourselves a reasonable hourly rate for the time spent on RA’s businesses. Either way I would suggest you have Directors and Offi cers Insurance to prevent any personal liability if you have not got this already. The amount to charge really would depend on the level of work required. If it is just liaising with a managing agent I would suggest this would not require the same recompense as someone involved in the self-management of the block – which would include statutory responsibilities such as Fire Risk Assessments etc. Either way, it is important that you are always reimbursed for ‘out of pocket’ expenses such as the purchase of stationery and other items to carry out your role on behalf of others. I hope this provides a bit of guidance for you but ultimately the most important thing is you try and reach a consensus on the agreed recompense for your time with your fellow leaseholders.
RESERVE FUND Q A
We are a small development of 30 fl ats. For the fi ve years up to 2006 we were told we were exempt from corporation tax. Since then we have paid corporation tax on the interest made on the money held in our reserve fund. Should we be paying this tax? Richard Williams, FPRA Vice-Chairman replies: If the “Reserve Fund” represents money paid as services charge, then it should be recorded in the accounts as being held in trust, pursuant to s. 18 Landlord and Tenant Act 1984. The income (presumably interest) should be subject to income
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