London Trocadero (2015) LLP v Picturehouse Cinemas Limited & Ors

A tenant’s liability for insurance rent depends on the contractual wording, not merely on whether a sum is described in insurance documents as a premium. Where the lease requires payment of sums payable by way of premium for keeping premises insured, a landlord cannot recover an amount corresponding to commission which it has engineered to receive back and which is not consideration for services to insurers. A separate fee added to insurance rent must have a contractual basis. A landlord’s insurance obligation may require an operative system, not merely continuing replacement works. However, cover stated to be sufficient on an insurance certificate may satisfy an obligation to insure for the full reinstatement cost despite unusual excess or co-insurance provisions. Restitution is available for sums paid under a valid contract where the contract distinguishes sums contractually due from sums not due and the latter are paid on a basis that has totally failed.

The claimant landlord sought to recover insurance rent and related sums from the tenant of a cinema at the Trocadero Centre. The tenant counterclaimed for repayment of insurance rent paid for the years 2015/16 to 2022/23.

The dispute concerned commission rebated to the landlord, a 35% fee added in 2022/23, failures concerning the Centre’s sprinkler system, excesses and co-insurance clauses, an alleged settlement, and an electricity charge. Earlier proceedings concerning rent arrears had resulted in summary judgment for the landlord and dismissal of an appeal, leaving the counterclaim for determination.

1. Premium Issue. The phrase in clause 3.6.1(a), requiring payment of sums payable by way of premium for keeping the Centre insured, required the sum to be a real cost incurred for that purpose. Commission which the landlord had procured to be paid to brokers and rebated to the landlord was optional, increased the premium, was not consideration for services supplied to insurers, and was not contractually recoverable. The same construction applied to clauses 3.6.1(b), (c) and (e). The 35% fee was not a premium, was not a fee for valuation or advice, and had no contractual basis.
2. The court considered that, on an alternative construction, a limited term would be implied requiring insurance dealings to be at arm’s length, without an intention to confer a benefit on the landlord at the tenant’s expense. The proposed Braganza term was not implied because the lease did not confer the relevant anterior discretions on the landlord.
3. Sprinkler Issue. The landlord’s obligation to maintain, operate, inspect, repair, overhaul, replace and renew firefighting equipment required an operative sprinkler system. Continuing construction works did not constitute repair, overhaul or maintenance for the purpose of the contractual interruption exclusion. The landlord was in breach from 2014/15 to 2019/20. That breach increased insurance rent in 2017/18 to 2020/21. Damages were to be assessed broadly where precise quantification was impossible.
4. Excess Issue. The obligation to keep the Centre insured for the full reinstatement cost was satisfied by cover of a sufficient stated amount. The unusual excess and co-insurance terms did not prevent recovery of insurance rent. The principle that a party cannot benefit from its own wrong was not engaged.
5. Restitution. The tenant’s payments could be apportioned between sums contractually due and sums not due. The common basis was that the landlord could retain only sums contractually payable. That basis failed totally in respect of the commission element and the 35% fee. The landlord was unjustly enriched, including in 2015/16 where its agent received the payment.
6. The counterclaim succeeded on the Premium Issue and Sprinkler Issue, failed on the Excess Issue and Electricity Issue, and quantum and consequential matters were left for further determination.

The judgment records earlier proceedings concerning rent arrears. Summary judgment was entered for the landlord, reported at [2022] P&CR 19, and the Court of Appeal dismissed the tenant’s appeal, reported at [2023] 2 P&CR 19. The present judgment determined the tenant’s remaining counterclaim at first instance.