Commercial Landlords: Don’t Charge Tenants Engineered Commissions
It has been the practice for many commercial landlords to receive commission by insurers when arranging block insurance - but without their tenants necessarily knowing about it. Alternatively, landlord may take a share of a broker’s commission.
Commercial landlords, property investors and businesses (and their professional advisers) need to know that an important ruling has put this somewhat opaque practice into the spotlight. The court has allowed a business tenant a refund of insurance ‘overpayments’ because the landlord had effectively engineered excessive commission at the tenant’s expense.
As the judge observed: “People in a business relationship governed by a contract… expect to pay and receive only sums that the contract requires.” However, the tenant had paid what was contractually due – plus further sums which it was not contractually liable for.
What’s the background?
Picturehouse Cinemas was the tenant of the large Trocadero Centre in London where it operated a large cinema. Under two leases, the landlord was required to obtain insurance for the whole of the Trocadero Centre and entitled to recover the cost of it from all its tenants.
The tenant argued that it had been overcharged insurance through its service charges for the years 2015-2016 through 2022-2023. At the time, it had no concerns that the amounts demanded were excessive.
In the relevant insurance years, the insurance premium charged by insurers at the Trocadero Centre included the brokers’ commission. But in some cases, the landlord’s commission was inflated by taking a share of commission payable on policies at a rate of as much as 56% of the premium. The tenant claimed a repayment.
The landlord argued that it was well understood that a ‘premium’ payable for an insurance policy included commission. The judge rejected this assertion saying “a typical landlord and a typical tenant” would expect ‘premium’ to include parts used to fund commissions paid to brokers, but not to the extent that a broker chose to share its commission with another.
Therefore, certain of the amounts paid by the tenant over the years, in excess of the insurance rent, had not been contractually due. The landlord had been unjustly enriched at the expense of the tenant.
The judge added that common sense suggested the landlord could not retain sums that were not due. It was also at odds with commercial reality: people pay invoices because they consider them to request payments of lawfully due sums. The tenant was entitled to a total repayment of around £700,000.
Key takeaway
The decision is an important win for business tenants; and could lead to further legal challenges against landlords. Commercial landlords should be reviewing their practices in light of this case and, if necessary, plan for potential claims.
1London Trocadero (2015) LLP v Picturehouse Cinemas Ltd and others [2025] EWHC 1247