Behind the Screens: The hidden costs of commercial property insurance

July 10, 2025

In a lease of commercial property, the tenant is often required to pay the landlord’s costs of insuring the building. This payment, sometimes referred to as “insurance rent”, is a typical feature of full repairing and insuring (FRI) leases, and is designed to ensure the property remains adequately protected while the associated administrative process runs efficiently. Despite this, there is a potential for disputes to arise if there is insufficient transparency in the way insurance costs are passed by the landlord to the tenant. In a recent High Court decision, renewed scrutiny has been placed on the legitimacy of insurance charges, limiting the landlord’s ability to recover such costs from the tenant.

Case Background

In the case of London Trocadero (2015) LLP v Picturehouse Cinemas Ltd & Ors, the Tenant, Picturehouse Cinemas, operated a cinema in the Trocadero Centre, a large complex in central London owned by London Trocadero (2015) LLP (the Landlord). The terms of the lease required the Tenant to pay insurance rent based on “the premium payable” by the Landlord for insuring the building.

The Landlord obtained insurance for the entire Centre under a group-wide block policy between 2015 and 2023, which covered properties across its £4 billion portfolio. Insurance brokers received substantial commissions for arranging this policy, while a portion of the insurance commission was rebated to the Landlord’s managing company, CCL. This rebate, effectively a form of income or “Landlord’s Commission,” was included in the overall premium charged by the Landlord to the Tenant.

The Tenant paid insurance rent invoices, but later counterclaimed for the return of overpayments, on the basis that commissions rebated to the landlord did not fall within the meaning of “premium payable” under the lease, and should not have been passed on to the Tenant. The Tenant argued that the insurance was structured in such a way that the Landlord yielded a profit, not merely the recovery of costs.

Findings of the High Court

The High Court examined the issue of whether a landlord can pass on insurance costs to tenants that include commission rebates. The case revolved around the definition of “premium payable” by the landlord, for which the tenant was ultimately liable.

In a commercially nuanced judgment, the High Court judge, Mr Justice Richards, held that insurance commissions rebated to the landlord could not properly be treated as part of the “premium payable”. The term “premium” referred to the net cost incurred by the landlord to secure cover from the insurer, not inflated amounts that included profit elements.

The Judge determined the following facts:

  • The landlord actively negotiated for high commission levels to be paid to brokers, knowing a substantial portion would be rebated to the managing company.
  • The rebates were a form of revenue for the Landlord group, and their inclusion in insurance rent was not contractually justified.
  • The commissions increased the total insurance premiums, meaning the landlord was able to recover more from tenants than the net cost of insuring the premises.

As the judge clarified, tenants are liable only for genuine third-party costs, not for amounts structured to deliver financial benefit to landlords. Charging more than the actual cost of insurance cover in order to generate a hidden profit is not permissible.

Implications for Landlords

The decision has significant implications for landlords who rely on insurance-related recoveries as a revenue stream:

  • Importance of Lease drafting

Landlords must ensure that insurance rents passed to tenants in the lease reflect the actual cost of premiums paid to insurers, and exclude rebated commissions and unrelated charges. Likewise, landlords who wish to recover wider insurance-related costs, including commissions or fees, must ensure explicit wording is used in the lease to this effect. Terms such as “premium payable” will be construed narrowly by the courts, in the tenant’s favour.

  • Block policies

The case highlights the complexity of block policies. While these offer administrative convenience, the method of apportioning premiums and handling commissions must be transparent and defensible under the wording of the lease.

  • Risk of Tenant claims

The case may embolden commercial tenants to review historical insurance rent payments and pursue overcharge claims, particularly where brokers’ commissions were shared with landlords.

Implications for Tenants

For tenants, the ruling provides a reassuring precedent for challenging opaque insurance charges imposed by landlords:

  • Insurance costs

Tenants are encouraged to seek full documentation of how insurance costs are calculated, including any commission arrangements, broker fees, and landlord rebates.

  • Lease negotiation

This case strengthens the tenant’s position in the negotiation of lease renewals or rent reviews. Tenants should consider attempting to incorporate terms which prohibit the inclusion of commissions in insurance rent and limit the payments to net premiums only.

  • Avenues for cost recovery

Where lease terms mirror those in the Trocadero case, tenants may now have a clear legal route to reclaim overpaid insurance rent, provided they act within statutory limitation periods.

Conclusion

The London Trocadero v Picturehouse Cinemas case sets a new precedent on provisions related to the recovery of insurance-related costs in commercial leases, with significant implications for the commercial property landscape. Insurance rent provisions are not an open-ended licence for landlords to pass on inflated or undisclosed costs to tenants. Precision and transparency in lease drafting will now be more important than ever.

In light of this case, landlords and tenants alike are encouraged to revisit their lease terms, and review the provisions related to insurance. In doing so, this will reduce the likelihood of disputes and perhaps lead to more equitable commercial agreements.

How we can help

For further information, or to discuss the issues raised within this case, please contact us to speak to a member of our Real Estate Team.

Rachel Duncan
Partner, Real Estate
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David Mortimer
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This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

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