© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
There has been a steady growth of actions within the Leasehold Valuation Tribunals since the Commonhold and Leasehold Reform Act of 2002. With the requirements to send section 153 and section 158 notices with any demands or administrative fees to leaseholders explaining their statutory rights and obligations the law has created a system of leaseholder led regulation. In the event that leaseholders believe their service charges are unreasonable they can challenge them through the Tribunal system. Whilst no professional within the industry wishes to see unreasonable demands being made there are problems particularly where the landlord within the lease is either a resident management company (“RMC”) or Right to Manage (“RTM”) Company.
Where a leaseholder wishes to challenge the reasonableness of their demands they can apply to the Tribunal and simultaneously apply under section 20c to limit the landlord from claiming the costs of defence from the service charge account (always of course depending whether the lease allows). All the leaseholder has to do is tick the box on the form to activate this additional part of a case.
If the landlord is a resident controlled company their only source of income may well be the service charge account. The Company are therefore unable to instruct legal representation as that would incur costs which it may be unable to meet. The directors would be committing an offence in placing the Company in such a position where their own Directors and Offices liability insurance (“D&O”) may not cover them. The Tribunal therefore goes undefended and there is a deficit in the service charge account that cannot be fully recovered.
A solution is in placing a legal expenses insurance where the premium can be recovered from the service charge account. The policy is particularly written for Tribunals and does not cover claims within general legal action. Where D & O policies were unusual over 20 years ago in this sector they are now commonplace; the same will be the case for legal expenses policies particularly where more and more landlords are resident controlled companies.
In practice many leaseholders may claim that an individual would never take action against their own company but in my experience that is simply not the case. Leaseholders often blame managing agents for the excesses on their service charges and believe that an action within the Tribunal will affect the agent. This misunderstanding can have a severe impact upon a resident controlled company and thus the insurance policy provides the protection. An RMC or RTM company without such a policy risks getting struck off at Companies House in the event of a claim within the Tribunal. They lose their ability to control the management, the service charge levels, possibly the insurance and in the doomsday scenario even their freehold reversion.
Simon Glover is Associate Director with Chambers & Newman Insurance brokers.