The reverberations from London Trocadero (2015) LLP v Picturehouse Cinemas Limited [2025] EWHC 1247 (Ch) will be felt throughout the commercial property industry, and we predict it will contribute to a much needed transparency in the historical practices of certain landlords' relating to buildings insurance.
Background
The well-known cinema chain has been a tenant of part of the Trocadero since 2014, replacing another cinema operator following the assignment of a lease granted in 1994 and with a further lease on similar terms having been granted.
The landlord of the Trocadero is Criterion Capital, which acquired the premises in 2015. There has been extensive litigation between the parties, following, in part, the effect of the COVID-19 pandemic on the tenant's business. This counterclaim by the tenant is the final part of the litigation to be heard. There are also forfeiture proceedings in the Central London County Court, but for the purposes of this hearing, the court assumed that the leases were still in existence.
The tenant's counterclaim
The tenant's claim is that it has been overcharged through the service charge provisions in the lease relating to the cost of the landlord providing insurance for the centre. The court accepted that the Trocadero centre, being an amalgamation of buildings with a high footfall, has a high risk profile. The landlord is obliged to insure the centre and can pass the cost of that insurance to the tenants of the building, of which the tenant is one.
Given the complex insurance situation, the landlord employs the services of a broker. The brokers for the years in question have been 'household' names such as AJ Gallagher, Marsh and Towergate. As the risk profile of the centre is high, there is a syndicate of insurers. The work required to be done by the broker is therefore highly skilled and the remuneration for this work is part of the premium paid by the landlord.
The tenant claimed, however, that the premium was being inflated beyond a reasonable amount for the broker's work.Further, the broker would then repay some or most of the premium it received to the landlord. Notwithstanding this, the tenant would be charged the whole amount of the premium thus giving the landlord a windfall.
Landlord's argument
The landlord submitted that the obligation on the tenant to pay the costs of the landlord obtaining insurance would include the broker's premium, notwithstanding that it would be remitted back to the landlord. The demands were therefore compliant with the lease, which allowed not just the cost of insurance itself, but the expense of obtaining the insurance.
Tenant's argument
The tenant's expert submitted evidence of traditional practices within the industry stating:
"it was not unusual for landlords to retain the majority of insurance premium commissions. Many saw insurance as a means of increasing profits in an environment where transparency of landlord income was not considered necessary, or indeed desirable".
It submitted that such large sums – in this case 35% 'landlord's commission' - could not be described as the cost incurred by the landlord in obtaining insurance.It is difficult not to sympathise with the tenant, but it should be remembered that in commercial situations, the courts are prepared to enforce seemingly harsh bargains that the parties have chosen to enter into.Had the landlord been able to show that the lease was drafted expansively enough to encompass these costs, then the tenant would have been in difficulties.
The Judgment
Richards J agreed with the tenant.Whatever industry practice had been or still was, the 'landlord's commission' was not payable under the lease.He found that the drafting was not wide enough to encompass the inflated commissions within the service charge obligations.
He also agreed that it was permissible to imply into the lease the so-called Havenbridge term.This term was named after the eponymous case, where the judge implied a term into a contract to procure insurance that the landlord must negotiate insurance on arm's length terms, avoiding arrangements designed to inflate premiums for personal gain.
Our comment
The significance of this case does not lie in novel jurisprudence, but in the way it brings judicial scrutiny to an industry where 'transparency of landlord income was not considered necessary, or indeed desirable' and likely increases awareness amongst tenants.These cases tend to turn on the specific drafting of leases and so tenants in similar situations may wish to look at their own documents.
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