Welcome to the third edition of RED Alert of 2025.
Also featuring in this update:
Trocadero (2015) LLP v Picturehouse Cinemas Limited [2025] EWHC 1247 (Ch)
Background
The High Court's recent judgment provides important guidance on landlords' ability to recover insurance costs from tenants, specifically regarding commission arrangements.
The dispute arose from London Trocadero (2015) LLP's (the Landlord) attempts to recover commission on insurance costs from Picturehouse Cinemas Limited (the Tenant). The Landlord arranged insurance through a "block policy" covering its entire £4 billion property portfolio, with costs apportioned to individual properties, and further to individual tenants.
The dispute concerned 'Landlord's Commission' - the practice whereby insurance brokers share their commission with landlords, who then seek to recover these amounts from tenants as part of insurance rent. In this case, the Landlord had been receiving substantial commission payments of up to 52.4% of gross premiums.
Legal position
The reasonable reader test
The case turned on whether the wording of the lease entitled the Landlord to recover commission from the Tenant. Central to the court's analysis was the principle that lease construction depends on how a reasonable reader would understand the provisions, rather than how landlords or tenants might interpret them to suit their commercial interests. The court considered whether amounts corresponding to commission were truly "payable... by way of premium for keeping the Centre insured."
Would a reasonable reader understand the word 'premium' to encompass payments that are essentially profit-sharing arrangements between landlords and brokers? The London Trocadero court concluded they would not. The judge reasoned that for sums to be recoverable as a 'premium', they must be both genuinely 'payable' by the landlord and paid 'for keeping the Centre insured.'
Commission arrangements failed both tests because they were rebated through arrangements the landlord engineered (so only the net amount was
truly 'payable'), and they represented consideration "for providing the Landlord with an opportunity to profit at the Tenant's expense" rather than for insurance services.
This objective construction approach means that even sophisticated commercial parties cannot assume their subjective understanding of lease provisions will prevail if it conflicts with how a reasonable reader would interpret the language.
The unjust enrichment revolution
The most significant aspect of the London Trocadero judgment wasn't just its contractual analysis, but its willingness to apply principles disallowing unjust enrichment to prevent landlords from retaining payments that weren't permitted by the terms of the lease. The tenant successfully recovered insurance rent payments in respect of commission on the basis that it was paying artificially increased premiums because the landlord was benefitting from excessive commissions.
The court applied the established three-part test:
- the landlord was enriched
- at the tenant's expense
- in circumstances the law regards as unjust.
Crucially, the court found that payments were made on the basis that they discharged contractual obligations actually due, and this basis failed totally regarding commission amounts that represented profit rather than genuine insurance costs.
Our comment
This judgment signals a more restrictive approach to landlords' insurance cost recovery rights and emphasises the importance of genuine arm's length dealing in insurance arrangements. The court's willingness to scrutinise commission arrangements and apply restitutionary principles suggests that the traditional assumption that previous market custom whereby 'anything goes' in insurance cost recovery is no longer tenable.
For the wider market, this case highlights the need for greater transparency in insurance arrangements and suggests that both landlords and tenants should review their existing lease provisions to ensure they reflect current legal principles and to ensure that such costs are in accordance with lease terms.
Key points for landlords
Commission arrangements and leases require careful structuring: Landlords can no longer assume they can automatically recover broker commission rebates as part of insurance rent unless this is clearly provided for in the lease. Landlords should:
- Review lease provisions to ensure any commission to be retained is expressly provided for.
- Review existing commission arrangements to ensure they represent genuine costs rather than profit opportunities.
- Be prepared to justify commission levels by reference to market norms and actual services provided.
- Consider whether to amend precedent lease terms moving forwards if they wish to recover such costs.
Key Points for Tenants
Challenge excessive commission charges: Tenants should not automatically assume that all insurance charges demanded by landlords are legitimate. The judgment provides a framework for challenging commission-based charges that exceed market norms. Tenants should:
- Consider their lease terms in respect of insurance rent and identify what they are obliged to pay.
- Request detailed breakdowns of insurance costs, including commission arrangements – this may even require a request for pre-action disclosure – tenants may wish to make such request historically to identify whether rebates are due.
- Consider obtaining expert evidence on market rates for insurance commission.
- Consider whether commission arrangements represent genuine costs or profit opportunities for landlords.
