The recent High Court decision in Picturehouse Cinemas Ltd v London Trocadero (2015) LLP has sent ripples through the commercial property sector. At its core, the dispute revolved around the proper interpretation and recoverability of insurance rent under a lease—particularly, whether insurance commissions charged by the landlord’s broker could lawfully be passed on to the tenant. This article summarises the key issues, clarifies the standard understanding of insurance rent, and outlines both the initial and latest judicial findings.
The Main Issue in the Dispute
The central question was whether Picturehouse Cinemas, as the tenant, should be liable to reimburse insurance premiums that included undisclosed and significant commission fees—up to 60%—retained by the landlord’s insurance broker. Picturehouse argued that these commissions were not part of the “cost of insurance” as envisaged in the lease, and thus not recoverable through the insurance rent.
What Is Insurance Rent?
In commercial leases, “insurance rent” refers to the amount a tenant must reimburse the landlord for insuring the property. This typically includes the premium paid by the landlord to cover specified risks, such as fire, flood, and public liability. However, disputes often arise over what constitutes the actual cost of insuring the property, particularly where the landlord employs a broker who receives a commission.
Generally, insurance rent is understood to mean the net cost of the premium payable to the insurer, excluding profit margins or commissions not strictly necessary to obtain the cover. The inclusion of commission—especially undisclosed or excessive ones—has been contentious.
Summary of Initial Proceedings
In earlier proceedings, Picturehouse had unsuccessfully argued that they were not liable to pay rent during the COVID-19 lockdowns when their cinema was forced to close. The High Court held in favour of the landlord, ruling that the obligation to pay rent was not suspended by pandemic restrictions.
This ruling reinforced landlords’ rights to full rent regardless of trading conditions or operational shutdowns, setting an important precedent for post-pandemic rent arrears litigation.
Summary of Latest Proceedings and Decision
In a more recent claim, Picturehouse challenged over £700,000 of insurance rent on the grounds that the premiums included broker commissions that were neither transparent nor properly recoverable.
The High Court agreed. It held that the commissions were excessive and not part of the “cost” envisaged in the lease wording. Furthermore, the court criticised the landlord for failing to maintain the building’s sprinkler system, which contributed to increased premiums.
As a result, the court ordered the landlord to repay the disputed amount to Picturehouse. The judgment clarified that landlords cannot recover inflated or undisclosed insurance costs from tenants unless clearly permitted under the lease. This ruling is expected to prompt commercial tenants across the UK to scrutinise their insurance rent obligations more closely.
Conclusion
The Picturehouse v Trocadero judgment serves as a critical reminder of the importance of transparency and fairness in lease obligations. It redefines the boundaries of what can lawfully be recovered as insurance rent and underscores that landlords must justify the amounts they seek to pass on.
For tenants and landlords alike, the case highlights the need to:
- Review the wording of insurance clauses carefully, especially definitions of “cost of insurance” and permitted recoverable expenses.
- Question whether broker commissions or administrative costs are explicitly included.
- Ensure that building maintenance obligations (such as sprinkler systems) are being upheld, as these can impact insurance premiums.
Lisa’s Law can assist by:
- Identifying vague or unfair terms in proposed lease drafts before signing.
- Negotiating clearer provisions regarding insurance rent and transparency requirements.
- Advising on your rights and obligations under existing leases.
- Providing guidance or representation in case of disputes over service charges or insurance rent.
Engaging with Lisa’s Law at the outset can help mitigate risk, reduce future costs, and ensure that the lease reflects a fair balance between landlord and tenant responsibilities.
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