Landlords’ Insurance Commissions: A Wake-Up Call for Commercial Property Strategy
A recent High Court ruling in London Trocadero (2015) LLP v Picturehouse Cinemas Ltd has had a notable impact on the commercial property sector, particularly regarding how landlords manage and disclose insurance commissions.
The decision emphasises that insurance premiums passed on to tenants must reflect a true market rate and not simply serve as a vehicle for hidden commissions.
What Happened?
In this case, the landlord (London Trocadero) had insured the Trocadero Centre and passed the cost of the insurance premium on to its tenants, including Picturehouse Cinemas. However, the premium included significant commissions, some as high as 65%, which were rebated back to the landlord through a deal with their insurance broker.
The tenant challenged this, arguing that:
- The lease only required them to pay the actual insurance premium, not inflated amounts that included hidden commissions.
- The landlord was effectively profiting from the insurance arrangement, without providing additional value.
The court agreed with the tenant, ruling that:
- The lease did not permit the landlord to recover broker commissions or additional administrative fees as part of the insurance rent
- The landlord was ordered to repay hundreds of thousands of pounds in overcharged insurance rent
A Simple Example
Imagine you’re renting a shop in a retail centre. Your lease says you must pay your share of the building’s insurance premium.
- The real cost of the insurance is £10,000.
- The landlord’s broker inflates the premium to £16,000.
- The broker keeps £4,000 and rebates £2,000 back to the landlord.
- You, the tenant, are charged £16,000 – £6,000 more than the actual cost.
This case says that’s not alright unless your lease clearly allows it. If it doesn’t, you may be entitled to a refund.
This case isn’t just about leases, it’s about transparency, defensibility, and strategic planning.
For landlords, the message is clear: clauses allowing for recovery of insurance costs need to be watertight, and “premium” must explicitly include any commission element. Failure to do so could result in disputes, clawbacks, or unintentional exposure to scrutiny.
For tenants, especially those contractually bound to accept the landlord’s chosen insurer, this is an opportunity to push for clarity and control and potentially reassess whether current arrangements are commercially justified.
How we can help:
- Commission Structuring & Tax Efficiency: If you’re receiving or paying commissions, we help ensure the arrangements are transparent, compliant, and tax-efficient.
- Risk Management & Reporting: We help you build documentation and governance processes that stand up to internal and external scrutiny.
With courts now taking a much greater interest in what’s “reasonable” and “arm’s length” in insurance arrangements, a proactive review is not just prudent, it’s essential.
