The High Court recently decided in London Trocadero (2015) LLP v Picturehouse Cinemas Ltd and others [2025] EWHC 1247 (Ch) that landlords cannot recover insurance commissions and arbitrary fees from tenants if these are not genuine insurance costs under the lease.
Picturehouse Cinemas, a tenant of the Trocadero Centre, London, was entitled to be refunded a proportion of the insurance rent it had paid to its landlord corresponding to insurance commission and a sum equal to 35% of the insurance premium charged by the landlord as ‘placement administration and work transfer’ fees.
The element of insurance rent relating to commission had been paid by the tenant from 2015/16 to 2021/22, the fees element was paid in 2022/23. The commissions were substantial amounts ranging from around 17% to 57% of the insurance premiums over the relevant years of the lease.
Lease provisions
Under the terms of its lease, the tenant was obliged to pay to the landlord by way of additional rent, during each year of the term of the lease, a proportionate part of the total sum equivalent to the amount
- payable by the landlord by way of premium for keeping the Trocadero Centre insured against loss or damage by insured risks, for such amount as necessary to cover the full costs of rebuilding or reinstating it; and
- of any fees and expenses incurred in obtaining valuation and advice as to the appropriate level of insurance cover or otherwise relating to the insurances referred to in the lease.
Negotiation of premium payable by the landlord
The landlord’s insurance broker negotiated the insurance premium with the insurers. The premium comprised an amount relating to the actual cost of keeping the Trocadero Centre insured and an amount by way of commission. The insurers charged the landlord for both amounts. The insurer paid commission to the broker, which the broker, as it was entitled to do, passed on to the landlord, therefore the insurer was not out of pocket by paying the commission to the broker.
What could be charged back to the tenant under the lease?
The High Court decided that
- the landlord was not entitled to recover the portion of insurance rent corresponding to the commission from the tenant on the basis that such sums were not 'payable... by way of premium for keeping the [Trocadero] Centre insured' to cover rebuilding and reinstatement costs within the meaning of the provisions of the lease and that the commission was an amount engineered to provide the landlord with a profit at the tenant’s expense.
- the 35% fee was not payable because it was not charged for 'valuation and advice' or on an alternative interpretation of the clause, it was not 'a "fee or expense" relating to the insurances referred to in the... lease... it was an entirely arbitrary sum… determined to provide the landlord with a desired amount of cash rather than following any determination of costs or expenses that the landlord incurred in connection with insurance’. The landlord appears to have accepted the fee was not part of the premium.
The High Court’s decision was based on the construction of the express terms of the lease. Whilst it was not necessary for the High Court in making its decision to consider the existence of any terms the tenant had argued should be implied into the lease, it did express that it would have implied a term into the lease to the effect that the landlord would only be entitled to demand sums by way of insurance rent ‘reflective of a price agreed following an arm’s length negotiation [which in] its usual sense …involves two parties seeking a deal that is in their own commercial interests unaffected by any subjective wish to confer a benefit on the other’. The High Court said that in the case it would have ‘included something a little broader… [connoting] an absence of any intention to confer a benefit on the landlord at the tenant’s expense’. There was no absence of such intention. If the term had been implied, the landlord would have been in breach of it.
Comment
Whilst the decision turned on the construction of the express provisions of the relevant lease, landlords should consider what they are entitled to recover under the terms of their leases and tenants should review what they have been paying by way of insurance rent and check that future demands for insurance rent only include amounts properly recoverable. Both parties should bear in mind that the Courts may be willing to imply a term into a lease as referred to above.
Tenants should also bear in mind that any claims they may have to recover insurance rent their landlords were not entitled to charge may be subject to a time limit to bring a claim.
Client Alert 2025-179
