Landlord and tenant – Rent arrears – Insurance rent – Defendant holding lease of commercial premises – Claimant landlord claiming recovery of rent arrears including insurance rent – Under terms of lease insurance rent calculated by reference to premium payable by landlord for keeping premises insured – Defendant seeking repayment of rent – Whether sums received as landlord’s commission forming part of premium – Claim allowed in part
The claimant was the freehold proprietor of the Trocadero Centre in London. Subject to ongoing forfeiture proceedings, the first defendant occupied part of the centre under two leases dated 1994 and 2014. The first defendant used the premises demised pursuant to the leases to run a cinema.
The second defendant was the original tenant and the third defendant was a subsequent tenant, which assigned its interest to the first defendant in 2014 and guaranteed obligations under both leases.
Pursuant to the leases, the claimant was obliged to obtain insurance for the whole centre and was entitled to recover the cost of doing from the various tenants (including the first defendant).
By clause 3.6.1(a) of the 1994 lease, insurance rent was calculated by reference to the amount of “premium payable by [the landlord] for keeping the centre insured”. Similar phrasing applied to other constituents of insurance rent. The first defendant objected to the fact that part of the premiums on which the claimant relied to establish its entitlement to insurance rent was paid back to the claimant by way of commission.
The claimant sought recovery of rent arrears including insurance rent. The first defendant counterclaimed arguing, amongst other things, that sums received back by way of landlord’s commission were incapable of forming part of the amount “payable … by way of premium for keeping the centre insured” and of founding a payment obligation pursuant to clause 3.6.1(a).
Held: The claim was allowed in part.
(1) The construction of the express clauses of the leases depended upon the objective meaning which those clauses would convey to a reasonable person with all the background knowledge reasonably available to the audience to whom the instrument was addressed.
The court had no power to improve upon the instrument which it was called upon to construe and could not introduce terms to make it fairer or more reasonable. However, the consideration of reasonableness could be a guide to meaning: Schuler v Wickman Machine Tool Sales Ltd [1974] AC 235, Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 and Arnold v Britton [2015] EGLR 53 considered.
(2) To found a payment obligation under clause 3.6.1(a), the sum in question had to be an amount “payable … by way of premium for keeping the centre insured”. Read as a whole, the phrase required that the sum in question had to be: (i) “payable” (and so constitute a real cost to the superior landlord) and (ii) “for keeping the centre insured [against the insured risks]”. To be the kind of “premium” with which clause 3.6.1(a) was concerned, the sum in question had to be “payable” and “for” the requisite purpose.
The landlord’s commission did not satisfy either of those requirements. Even if landlord’s commission formed part of a “premium”, it was rebated as part of arrangements that the landlord itself, through its agent, engineered. The proposition that the part of premium corresponding to landlord’s commission was not “payable” in any realistic sense involved no strain on the contractual language used. If someone “pays” 100 but has engineered an arrangement under which 30 was inevitably going to be repaid, it was sensible to say that only 70 was truly “payable”.
If the 30 represented consideration for services that the landlord was providing to insurers, the force of the point would be diminished. In that case, it would be realistic to speak of 100 being “payable” with the landlord receiving a separate payment of 30 for services rendered. However, based on the evidence, landlord’s commission was not consideration for services provided to insurers.
(3) Landlord’s commission was optional. In that regard, it could be contrasted with the element of brokers’ commission that brokers were expected to receive and retain. The agent did not have the power to dictate to its insurers how much commission brokers received and retained. However, the agent did have an unfettered ability to reduce to nil, if it chose, the amount of landlord’s commission that flowed back to the superior landlord. That suggested that, the landlord’s commission was “for” providing the landlord with an opportunity to profit at the tenant’s expense.
The 1994 lease was the landlord’s document and contained numerous provisions designed to enable the landlord to recover costs, such as provisions relating to service charge. If those provisions did not enable the landlord to recover the costs of its efforts in securing insurance, that was an indication that the costs in question were in the nature of overheads or costs of the landlord’s letting business which was to be paid out of the receipt of rent.
The part of an insurance premium that corresponded to landlord’s commission in the relevant years was not an amount “payable … by way of premium for keeping the Centre insured” for the purposes of clause 3.6.1(a).
(4) The obligation in clause 3.6.1(a) required the tenant to pay the amount the landlord “assessed” to be the relevant amount.
There was no express term dealing with the situation where an amount comprised in an “assessment” under clause 3.6.1(a) was later shown not to be contractually due. Since neither party asserted that there was a relevant implied term that required the landlord to repay sums received under clause 3.6.1 that were in excess of its contractual entitlement, there was no such implied term.
(5) The main body of clause 3.6.1(a) set out prescriptive provisions for determining how much the tenant had to pay in connection with insurance for the centre. A reasonable reader of the 1994 lease would not consider that those restrictive provisions could be side-stepped simply by the landlord establishing that a particular sum was expended (and so was an “expense”) relating to the insurances referred to in the lease.
The tailpiece was dealing with matters additional to those dealt with in the main body of the clause (i.e. fees and expenses for obtaining valuations and other advice) that would not naturally be covered by the concept of “premium”.
The “fees and expenses” in question were different in nature from the sums dealt with by the prescriptive provisions in the main body of clause 3.6.1(a). The amount of insurance premium that corresponded to landlord’s commission was not, therefore, covered by the tailpiece to clause 3.6.1(a).
Nicholas Trompeter KC (instructed by Ronald Fletcher Baker LLP) appeared for the claimant; Jonathan Seitler KC and Benjamin Faulkner (instructed by CMS Cameron McKenna Nabarro Olswang LLP) appeared for the defendants.
Eileen O’Grady, barrister
Click here to read a transcript of London Trocadero (2015) Ltd v Picturehouse Cinemas Ltd and others