The High Court has determined that the insurance premium attributable to the landlord's commission received on that premium was not an amount payable by the tenant for keeping the property insured on proper construction of the terms of the lease.
Background
This case was part of a long running dispute between - London Trocadero (2015) LLP (the Landlord) and Picturehouse Cinemas Limited (the Tenant). This branch of the dispute concerned whether the landlord was allowed, under the terms of two leases – one created in 1994 and one created in 2014, to re-charge the tenant the proportion of the insurance premium attributable to the commission received by the landlord from its broker.
The premises in question formed part of the Trocadero Centre (the Centre) in London.
Each lease contained an obligation on the Landlord to obtain insurance against the standard risks and allowed them to re-charge the insurance premiums from the tenants in the Centre (including the Tenant). The Landlord had arranged a block policy of insurance for all of its properties, including the one that was the subject of this litigation. In negotiating the premium each year, the landlord was able to indicate to the insurer how much commission it wanted to receive. The Court found that for each pound the Landlord received in commission, the premium would increase by a pound.
The gross premium (increased by the Landlord's commission) was then re-charged to the tenant as part of the insurance rent purportedly pursuant to the terms of the lease. The Tenant argued that the Landlord was not entitled to include the percentage of the insurance premium attributable to the commission to the insurance rent under the terms of the lease. It sought re-payment of sums that had been previously paid.
Decision
Richards J held that the Landlord was not entitled to re-charge the cost of the premium insofar as it related to commission it received in this way. In coming to the decision, the Court had regard to market practice when interpreting the terms of the lease and held that the sums were not contractually recoverable from the tenant.
The Tenant was therefore entitled to reimbursement of the sums that it had overpaid, and its claim for restitution of those sums succeeded. The factual background to the case is complex, and involved other issues. This particular issue can be summarised by the relatively simple proposition that a party to an agreement (like a lease) can only be obliged to pay sums under that agreement if the agreement actually says (expressly or impliedly) that it is obliged to do so.
This case serves as a useful reminder even if it is common practice in the market to re-charge a sum, If the contract does not require it, then it will not be due. It is therefore important to take care in considering the terms of the relevant lease when dealing with payments to be charged or paid.
Although in this case the terms of the lease did not allow the Landlord to re-charge the commission it received to the Tenant, this will not always be the case. The Court was clear that people in a business relationship (such as a landlord and tenant) expect to pay and receive only sums that the contract requires - therefore, had the lease allowed the landlord to re-charge the insurance commission, then the decision would have been different.
