Tenant successfully challenges payment of insurance rent

A tenant successfully challenged sums paid over several years as part of its insurance rent

This High Court case involves a landlord and tenant dispute related to the payment of insurance premiums for a cinema which forms part of the Trocadero Centre in London.

Who is involved?

By way of background, this litigation is linked to a dispute which started in relation to liability for rent arrears arising out of Covid-19. The landlord was successful in a summary judgment application in relation to those arrears (and the Court of Appeal later dismissed an appeal against this decision). However, as part of that dispute there was a counterclaim in relation to the insurance rent.

The claimant is the landlord and freeholder of the property.

The property is let under two leases: a 1994 lease and a 2014 lease. There are three defendants, the current tenant, the original tenant under the 1994 lease and a previous tenant who is now a guarantor under both leases. Both leases are subject to separate forfeiture proceedings in the County Court.

Another entity, Criterion Capital Limited (CCL) is a group company of the landlord. It is not a party to the proceedings but ‘acts as a managing agent for companies in the Criterion Group by arranging insurance for them’.

What was the case about?

The landlord is obliged to insure the Trocadero Centre. The case concerns the tenant's liability to pay the insurance rent under the terms of the leases.

What happened?

The tenant was seeking repayment in whole or in part for insurance rent demanded between 2015/2016 to 2022/2023. The building was insured as part of a block policy relating to the landlord’s whole portfolio. The premium would then be apportioned to the relevant property and then, again, to the units within that property. The tenant raised various issues in relation to payment of the insurance rent and the Court held the following:

The premium issue: Under the 1994 lease the tenant was required to pay the insurance rent. As part of that charge:

• For the years from, and including, 2015/16 to, and including 2021/22 substantial sums paid by the tenant as part of the insurance premium had ultimately been paid back to the landlord group. This was referred to in the judgment as the ‘Landlord’s Commission’. The judgment notes that in effect it was ‘the part of the broker's commission for the relevant insurance years that was, in practice, rebated to CCL’ and the judgment also notes that CCL ‘viewed the opportunity to obtain Landlord's Commission as a driver of the Criterion Group's earnings and profits’. The figures in the judgment set out that in some years the Landlord's Commission for the cinema as a percentage of gross premium excluding IPT exceeded 50%.
• For the year 2022/23 instead of the ‘Landlord’s Commission’ the landlord charged the tenant a "placement, administration and work transfer fee" (the 35% Fee) at the rate of 35% of the applicable insurance premium.

Ultimately, the Court held that as a matter of construction, based on the express wording in the lease, the ‘Landlord’s Commission’ for the years from, and including, 2015/16 to, and including 2021/22 was not an amount "payable … by way of premium for keeping the Centre insured". In light of expert evidence, the landlord accepted that the 35% fee charged for the year 2022/23 also would not fall within the definition of premium. The judge also found, again as a matter of construction, that this fee was not recoverable under other clauses. On the grounds there was a ‘failure of basis’ and these sums were not contractually due, the court held the tenant was entitled to restitution and the Landlord must repay the sums that correspond to the Landlord’s Commission and the 35% fee.

In the judgment there is commentary on the market practice during the applicable period of charging a ‘Landlord’s Commission’. In relation to 1994 when the lease was entered into the judge found ‘there was no general understanding shared between larger commercial landlords and their tenants in 1994 that landlords would be able to receive and retain Landlord's Commission or that the premium paid to brokers would include an amount of Landlord's Commission. The common understanding of a typical landlord and tenant as to the meaning of "premium" was a general one that did not deal with the specifics of Landlord's Commission. Accordingly, it did not amount to an understanding that it was in order for a landlord to benefit from Landlord's Commission at a tenant's expense. . ‘

The sprinkler issue: The Court also found that the Landlord was in breach of its obligations under the leases by failing to maintain a sprinkler system for a number of years and that this had increased the cost of the insurance premium for certain years. The court held the tenant was entitled to damages for breach of contract in relation to the sprinkler issue.

The excess issue: Under the 1994 lease the tenant was obliged to pay insurance rent for insurance that covers "the full costs of rebuilding or reinstating the Centre against loss or damage by the Insured Risks". The tenant argued that for a number of years ‘the Landlord's insurers required a significant excess and/or a co-insurance clause under the relevant policies because ….of poor fire safety controls at the Centre’. The tenant’s position was that it should not have to pay any insurance rent for those years because the Landlord was not obtaining cover for the "full costs of rebuilding or reinstating". Based on the construction of the 1994 lease, the Court found against the tenant on this issue noting it ‘would be the Tenant who obtained a disproportionate advantage if it were relieved of any obligation to contribute to the cost of insurance for the Centre since it would obtain some insurance protection for truly significant losses above the excess but would not be obliged to pay anything for it’. On balance the Court favoured the landlord’s approach which involves simply ‘looking at the certificate of insurance and verifying that the amount insured is sufficient’ and that on balance ‘a reasonable reader of the 1994 Lease in 1994 would conclude that, in practice, a test that focused on the amount of cover as stated on a certificate of insurance would be adequate since it would deal with most cases and the risk of excesses, or co-insurance clauses, sufficiently high to create a problem could be discounted as unlikely’. The Court also noted that in the circumstances, although ‘highly abnormal’ it had been reasonable for the landlord which was a ‘sophisticated buyer of insurance and was advised throughout by skilled and reputable insurance brokers’ to accept the excesses and co-insurance clauses.

How much will be refunded?

The judge left it to the parties to agree the exact figures, subject to the guidance on quantum provided in the judgment.

Comment

Although the case ultimately turned on the express drafting in the lease and specific facts, it highlights an area of practice that is likely to now see an increased focus in relation to both historic and future payments.

Trocadero (2015) LLP v Picturehouse Cinemas Limited [2025] EWHC 1247 (Ch)