Commercial Leases and Insurance: Prezzo Ltd -v- High Points Estates Ltd

Standard commercial leases, whether of an industrial unit, office or shop generally provide that the landlord insures the property, and the tenant reimburses the cost.

In a building with more than one tenant, the cost of the insurance is usually split between the tenants, and where a tenant leases just part of a building but the rest is retained by the landlord, then the tenant will pay a fair proportion of the cost.

So far, all very standard. What happens though if there is one tenant leasing part of a building, and a claim needs to be made on the insurance?

In this case, Prezzo had a lease of the ground floor and basement of a building and, in the usual way, it paid the landlord to arrange the buildings insurance. A fire in the restaurant caused damage to the building and the landlord made a claim on the insurance in the usual way, and the insurer paid the claim. However, the insurer then looked to try and recover the cost of that claim from Prezzo.

Previous case law has established that, generally speaking, an insurer cannot pursue a tenant for losses where the insurance was arranged for the tenant’s benefit (and indeed, partly paid by the tenant). In this case, however, the insurer sought to distinguish the claim between damage to that part of the building Prezzo leased, and damage to the rest of the building which it did not lease.

The judge held that the insurer could seek to recover from Prezzo damage caused to the rest of the building, because under the wording of the lease, the landlord was only required to insure the tenant’s premises (i.e. the ground floor and basement) and not the whole of the building, on the tenant’s behalf.

This is arguably an artificial distinction to make, but the consequences were severe for the tenant. If you happen to lease part of a building, it is worth giving consideration to precisely what your lease states.

Luke Cain is a solicitor in the Property department at Barker Gotelee Solicitors in Suffolk.

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