Whilst insurance rent is a standard provision within a commercial property lease; the scope for what may be included under this umbrella term is becoming increasingly contentious. Whilst obligations under the lease may seem relatively simple; the landlord is to insure the property and recover the cost from the tenant and tenant must pay the costs, there have been a growing number of cases before the Tribunal over what exactly a landlord can recover under insurance rent in a commercial lease.
Whether you’re drafting a lease, renewing a service charge, or managing a building it is paramount that you understand what qualifies as recoverable.
The recent case of London Trocadero (2015) LLP -v- Picturehouse Cinemas Limited [2025] provided some welcome clarity for tenants and a note of caution for landlords. This case determined the extent of the insurance rent that could be recovered pursuant to the lease and whether that included the insurance commission.
BACKGROUND
This case involved the landlord of the Trocadero Centre (“the Centre”) which is a well know building in Piccadilly Circus, London. The tenant was Picturehouse Cinemas Limited pursuant to a lease originally granted back in 1994 and a further lease in 2014.
The landlord was responsible for insuring the Centre and the lease permitted the landlord the right to recover the insurance rent from the tenant. The landlord had arranged the insurance cover for the Centre through a block policy, which is standard practice, with the right to recover the cost from the various tenants within the Centre.
There is the practice of some landlords requesting insurers to pay the landlord’s brokers inflated commissions which the brokers pass onto the landlord, resulting in insurers increasing the premiums. This increased premium is then passed onto the tenant by way of a demand for insurance rent, which includes the element of commission and fees.
The dispute that arose between landlord and tenant in this case was the inclusion of the commission within the demand for the insurance rent. The tenant argued that the commission did not form part of the defined insurance rent and should not be recoverable pursuant to the terms of the lease.
The wording of the lease covenant for the recoverability of the insurance rent was calculated by reference to “premium payable by [the Landlord] for keeping the Centre insured”
THE DECISION
The court ruled that the landlord was only entitled to recover from the tenant the premium payable by the landlord for keeping the Centre insured. The court thereby held that the commission element being sought from the tenant was not recoverable. The evidence in the case revealed that the landlord had received commission of up to 60% of the premium on some occasions over the years, resulting in significant financial gain by the landlord to the detriment of tenants.
The landlord had attempted to recover the commission in 2022 and 2023 by way of a claim for placement, administration and work transfer fee, but the court concluded that this was not a genuine insurance rent cost and therefore would not be recoverable pursuant to the terms of the lease.
In addition to the determination relating to the extent of the insurance rent recoverable, the tenant also challenged the increased insurance premiums in the years 2017 and 2018 to 2020/2021, which related to the fire safety sprinkler system in the Centre. The landlord had undertaken works converting part of the Centre into a hotel, which had breached their obligations to maintain that system, resulting in increased insurance premiums during that period. The tenant was unsuccessful in its challenge as the court held that the landlord, during this period, was still required to retain insurance cover for the full cost of reinstatement, as such, those increased premiums were still validly due from the tenant pursuant to the terms of this lease.
The tenant’s success in part relating to the commission element of the insurance rent resulted in the tenant recovering the over payments in restitution.
Points to Remember
It is important to remember that each case will turn on its own facts and therefore it is necessary to consider the specific wording of each lease clause relating to recoverability for a payment to determine what is contractually due.
In this case, the lease did not permit the landlord to recover anything other than the insurance premium.
It is important to be aware that claims of this nature are subject to a six-year limitation period.
Not all leases are worded in the same way and landlords may find that the insurance rent recoverability in other leases may extend to that of commission and fees.
If you are a landlord or tenant of a commercial lease and concerned about the extent of your lease covenants relating to insurance rent, please contact us on 0345 646 0406 and a member of our team will be in touch.