Landlord and tenant – Covenant – Fire insurance – Insurer indemnifying defendant landlord in respect of fire damage caused to premises and seeking to recover from claimant tenant – Claimant seeking declaration of immunity from whole of defendant’s claim – Whether insurance of building effected by defendant enuring to benefit of claimant rendering it immune from action in respect of damage – Claim dismissed
The defendant was the freehold owner of a property known as Salisbury Buildings in Harrogate (the building). The claimant was the leasehold tenant of parts of the building, namely the ground floor and the basement (the premises). The premises were held pursuant to a lease made in 1996. The lease contained a covenant by the landlord in favour of the tenant (clause 4(2)) to “insure the premises in accordance with its obligations” as lessee in a superior lease. The superior lease required the defendant to insure, amongst other land, the whole building of which the premises formed part. There was no express obligation in the claimant’s lease on the defendant to insure the building. The defendant was also obliged to pay the rent and perform the covenants under the superior lease. The claimant was obliged to repair and maintain the premises except for the damage caused by such of the insured risks as the defendant was obliged to insure against, to pay insurance rent as its contribution to the insurance that the defendant was obliged to obtain, and not to effect any insurance of the premises without the defendant’s permission. On 18 March 2014, a fire occurred at the premises, which caused damage both to the premises and the building. The insurer indemnified the defendant under the policy and sought to recover from the claimant.
It was accepted that the principle in Mark Rowlands Ltd v Berni Inns Ltd [1985] 2 EGLR 92 applied in respect of the restaurant, namely that where insurance had been effected for the benefit of both the landlord and tenant no claim could be brought against the tenant. The issue was whether the principle in Rowlands also prevented recovery from the tenant in respect of damage to the rest of the building. The claimant sought a declaration that it was immune from the whole of the defendant’s claim, in accordance with the principles set out in Rowlands because insurance of the building effected by the defendant enured to the benefit of the claimant and rendered the claimant immune from an action by the defendant in respect of damage to the building caused by the claimant.
Held: The claim was dismissed.
(1) The court had to construe the terms of the tenancy agreement in order to determine how the parties had agreed to allocate risk between themselves. A covenant by a landlord with his tenant to insure the demised premises in return for mutual obligations by the tenant was an important indicator that the parties intended that the tenant need not take out insurance for the risk covered by the landlord and would not be liable for any loss or damage suffered by the landlord falling within the scope of that which the landlord had agreed to cover. The strength of that indicator would depend upon the other terms of the tenancy, including whether they provided some alternative explanation for the covenant to insure. The strength of that indicator was greater where the tenant was contractually obliged to pay for, or to contribute towards, the cost incurred by the landlord of insuring the premises. Other relevant indicators included terms of the tenancy which relieved the tenant from repairing or other contractual obligation in the event of damage by an insured risk, or which required the landlord to lay out insurance monies on remedying damage caused by an insured risk, or which suspended the obligation to pay rent whilst damage from an insured risk prevented use of the demised premises. But the application of the principle in Rowlands did not depend upon the inclusion of all or any of these terms in the tenancy agreement. Where applicable the principle in Rowlands would defeat a claim brought against the tenant in negligence even in the absence of a clause expressly exonerating the tenant from liability for negligence: Mark Rowlands v Berni Inns Ltd [1985] 2 EGLR 92 and Fresca-Judd v Golovina [2016] 4 WLR 107 (QB) followed.
(2) In the present case, on its face, the obligation in clause 4(2) of the lease was to insure the premises as defined in the lease. The term “the premises” was defined in the lease. It was not the same as the building which was also a defined term in the lease. If the parties had intended to include the whole of the building, they could and would have said so. On analysis, this was not a case of incorporation wholesale of terms from another contract. The defendant was agreeing to insure the premises only and to do so in accordance with their obligations in the superior lease. The fact that the clause 4.2 obligation was limited to the premises was reinforced by the provisions of clause 3.19 which set out various covenants of the claimant, as the tenant, for example, clause 3.19.6 which prohibited the tenant from itself effecting insurance in respect of the premises. That provision was the logical corollary of the defendant’s obligation to insure the premises and was intended to prevent double recovery. The requirement that the defendant pay the rent and perform the covenants under the superior lease was not concerned with the insuring obligation, but with ensuring that the superior lease was not forfeited. The insurer was not precluded from making a claim against the tenant for loss and damage to the building other than the restaurant. Accordingly, the defendant’s obligations under clauses 4.2 did not extend to insuring against risk of damage to the building. It followed that the defendant was not precluded from making claims against the claimant with regard to loss and damage flowing from the fire.
Daniel Shapiro (instructed by Kennedys Law LLP) appeared for the claimant; Julian Field (instructed by DAC Beachcroft) appeared for the defendant.
Eileen O’Grady, barrister
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