Landlords may retain insurance commission

Where a landlord insures a property that is let he may well receive commission from the insurance company. Where the tenant is obliged to reimburse the landlord's costs of insuring, is he entitled to the benefit of any commission or discount received by the landlord? This will depend upon the terms of the lease, the landlord arguing when the lease is being negotiated, that the benefit of the commission should belong to the landlord alone as it is only because of the landlord's general insurance arrangements that commission is available. The tenant will maintain that if the landlord has to provide insurance that is fair and reasonable in cost, he should pass on any discount. A distinction may be drawn between premium discount which should be passed on to the tenant and commission which may be retained by the landlord.

This was the view taken by the High Court in the recent decision in Williams -v- London Borough of Southwark [2000] All ER (D) 377. The standard form of lease of a flat that had been let under the Right to Buy provisions of the Housing Act 1985, required the council to insure. The tenants paid the council's costs in respect of the insurance premiums. The council took out a block policy with Zurich Insurance Company. Zurich agreed to deduct 5% of the premium if the insurance was maintained for five years. Zurich also agreed that 20% should be treated as consideration for claims handling and administration carried out by the council on behalf of Zurich. Did the council have to make allowance for these discounts when charging the tenants for insurance?

Mr Justice Lightman held that the 5% loyalty bonus should have been passed on to the tenant because it actually reduced the premium payable by the council. However, the 20% payment to the council was not in law or fact a rebate or deduction from the premium payable. It was a payment for services. If the council had been obliged to credit the 20% to the tenants, they would nevertheless have been entitled to include in the service charge the cost to the council of performing the services of handling claims on behalf of Zurich.

Following this decision it would appear that, depending on the actual wording of a lease, any discount in the premium should be passed to the party paying the premium. Any commission or payment for services may be retained by the landlord.

For further information please contact Clive Newnham on 020 7367 3981 (e-mail [email protected]).