Advice for commercial tenants and landlords after Picturehouse and Trocadero’s insurance commission ruling

A recent High Court Judgment in Picturehouse Cinemas’ dispute with its London landlord, Trocadero LLP could set an important precedent in relation to the re-charging of commissions to tenants on insurance rents across the UK commercial property sector.

According to WHN director, Daniel Long, a specialist in commercial property dispute resolution, the Judgment could open the floodgates for commercial tenants reviewing the terms of their leases and seeking to reclaim insurance brokerage commissions they may have been charged.

In this article, Daniel assesses the case, its implications, and offers advice for commercial tenants and landlords.

What has happened so far?

Picturehouse’s landlord Trocadero LLP had delegated the task of arranging property insurance to its managing agent Criterion Capital Ltd to agree a ‘block’ policy to cover all the properties in its portfolios through a broker.

The broker would recover all or part of its fee through commission charged to the tenant. While it is standard practice that this fee can be shared with other parties, the landlord had arranged an increased fee to be charged to Picturehouse. These fees were at a variety of rates over the lifespan of the lease, up to 45.7 per cent.

The tenant’s claim against Trocadero was under the law of restitution, which aims to remedy unjust enrichment. The Judgment determined that Trocadero profited from the tenant through the commission, and the tenant was not contractually liable to pay. Trocadero has reportedly been ordered to repay around £700,000.

It is important to note that Trocadero has publicly stated that it intends to appeal the ruling.

What could the decision mean?

The Judgment could pave the way for tenants seeking to recover insurance commissions which were passed to landlords. While many commercial leases in the UK will include terms allowing landlords to recover insurance costs, less will have clear terms regarding the re-charging of commissions.

Ultimately, whether a tenant can make a claim regarding the commissions charged to them for insurance rent will largely depend on the terms of their lease.

However, if a tenant has paid a significant commission within the past six years of their lease and the wording of a lease agreement is unclear about a landlord’s ability to recharge commissions for insurance rent, there could be scope for a tenant to claim.

Our advice for tenants and landlords

For tenants:

There is little to lose: Commercial tenants have little to lose by consulting the terms of their lease and considering how insurance costs are defined and whether terms for re-charging insurance commissions are included.
Request a breakdown of insurance charges: Tenants can request a breakdown of their insurance charges, going back up to six years, including the proportion of the premium paid which was in commissions to a broker.
Consult an expert: If you are unsure about the terms of your lease, or if you think you may be able to claim, consult a solicitor for expert advice.

For landlords:

Check your lease agreement: If you are re-charging tenants a commission, check you are expressly able to do so under the terms of the lease. If you are unsure, consult an expert.
Review lease wording: Where leases are ambiguous about re-charging tenants for insurance commissions, landlords may wish to consider tightening up the relevant terms in any new leases.

While the Picturehouse v Trocadero LLP has set a precedent in the commercial property sector and potentially opened the door for claims by tenants who have paid similar charges, speaking to an expert who is monitoring this area of law as it develops will help tenants determine whether they are likely to be able to claim, the potential sums they could recover and the best way to do so.

For landlords, an expert solicitor can help them understand this area of law and how to best protect themselves from potential claims. WHN has a team of experienced legal advisers who can support both tenants and landlords across the UK.

Daniel Long is a director at WHN Solicitors and heads up the firm’s commercial department and property disputes team. He specialises in resolving disputes between landlords and tenants of commercial leases on matters including rent, service charge and insurance recovery, dilapidations, forfeiture, possession, insolvency-related matters, and lease renewal and termination. For advice on all matters relating to commercial leases, please contact Daniel on 0161 761 8063 or email him at [email protected].