The well known decision of the Court of Appeal in Mark Rowlands v Berni Inns Ltd [1986] 1 QB 211 established that, where premises are insured by the landlord, but at the cost of the tenant, for the benefit of both parties, the intention of the parties must have been that, in the event of damage by fire whether due to accident or negligence, the landlord’s loss should be recouped from the proceeds of the insurance. In other words, the landlord should have no further claim against the tenant, even though the lease does not expressly exonerate the tenant from liability for negligence.
But the litigation in Prezzo Ltd v High Point Estates Ltd [2018] EWHC 1851 (TCC); [2018] PLSCS 192 reminds us that Berni Inns will not always provide tenants with blanket protection against landlords and their insurers. The case concerned premises in Harrogate. The tenant, Prezzo, occupied and ran an Italian restaurant from the ground floor and basement of the building, which was damaged by a fire that started in Prezzo’s kitchen. Was Prezzo liable for the damage caused to the parts of the building that were not within its demise?
Prezzo’s lease required the landlord to insure “the Premises” in accordance with its obligations as the lessee under a superior lease of the whole of the building and adjoining property (which obliged the landlord to insure with a specified insurer, for the full reinstatement value, against specified risks, and to lay out the proceeds of such insurance in rebuilding and reinstatement, and to make up any deficiency out of its own money). So Prezzo claimed that it was not liable for any of the damage caused by the fire, thanks to the principle set out in Berni Inns.
But the court decided that the covenant in Prezzo’s lease obliged the landlord to insure “the Premises”, and not “the Building”. Both expressions were defined in Prezzo’s lease and, if the parties had intended the landlord to be under an obligation to insure the whole of the building, they could and would have said so.
The judge rejected Prezzo’s suggestion that the presence of the words “in accordance with … the superior lease” in the landlord’s insuring covenant had the effect of converting the landlord’s obligation to insure the Premises into an obligation to insure the building as a whole. The covenant did not result in the wholesale incorporation of the insurance covenant from the superior lease. It indicated what loss and damage was to be covered, with whom the insurance was to be placed, and the level of insurance required.
Consequently, although the tenant was not liable for the fire damage in its own premises, there was nothing to stop the landlord’s insurer from stepping into the landlord’s shoes and making a claim against Prezzo for the loss and damage that the fire had caused to the rest of the building.
The decision highlights the importance of checking leases carefully, when acting for incoming tenants, to make sure that the landlords’ insurance covenants relate to the entirety of the property of which the tenant’s premises form part. Tenants can also protect themselves by securing an express waiver of subrogation rights from the landlord’s insurers.
Allyson Colby, property law consultant