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Lease insurance provisions: Whether a landlord was obliged to pay insurance monies to the tenant for reinstatement of a property (Colt Group Ltd v Unicourt Wandsworth LLP – 2020)

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When insurance is taken out in the joint names of a landlord and tenant, and the tenant is responsible for reinstatement following damage, is the landlord obliged to pay monies received from the insurer to the tenant for the purposes of reinstatement?

The background

In Colt Group Ltd v Unicourt Wandsworth LLP [2020], Colt occupied premises as the tenant under a lease which required the tenant to insure the property in the joint names of the landlord and tenant. The tenant was obliged to reinstate the property in the event of any damage by insured risks. The lease did not contain any covenants in respect of the landlord relating to insurance of the premises or how insurance monies should be applied.

Following a previous rent review dispute between the parties relating to the adjoining property, the landlord stated its reluctance to negotiate with Colt in respect of any proposed variation of the lease. Colt wished to assign the lease of the premises, and that of the adjoining property, to H R Owen plc, who raised concerns relating to insurance, including the application of insurance monies by Unicourt to reinstate the property following damage.

H R Owen suggested a lease variation to deal with the issue but Unicourt would not proceed. Colt issued a claim, seeking a declaration that, amongst other scenarios, in the event of damage to the property and where the landlord received insurance monies, those monies would be paid to the tenant so far as reasonably required to fully fund the reinstatement of the property. The landlord made a statement relating to an earlier misunderstanding as to the use of words ‘cash settlement’, to the effect that it had always understood monies received from an insurer would be put towards the reinstatement of the property and also that the landlord could take a ‘cash’ settlement when agreed between the parties.

The decision

The court ordered a declaration in favour of Colt, requiring the landlord to pay to the tenant insurance monies received by the landlord for the purpose of reinstatement. The form of the declaration was limited to cover cases where the property was to be reinstated and the landlord had received insurance monies from the insurer.

The landlord had opposed Colt seeking the declaration on the following grounds:

1. the tenant’s entitlement to insurance monies for reinstatement purposes was not in dispute and any misunderstanding had been addressed in correspondence;

2. the claim related to a hypothetical future incident meaning that the court was being asked to make a declaration in a ‘factual vacuum’ where there still remained 47 years on the lease term;

3. an insurer was unlikely to make a payment to one party under a joint policy without the written agreement of the other party; and

4. the declaration would not achieve anything given that H R Owen had already stated that they would not proceed with the assignment unless a variation to the lease was made.

Colt’s primary concern was to obtain a declaration to the effect that, where reinstatement was to be undertaken by the tenant, any insurance monies received by the landlord in respect of that reinstatement would be paid to the tenant.

The court confirmed that the law on this issue did not dispute Colt’s request, being that if reinstatement was to take place, any insurance monies received by the landlord would be paid to the tenant to cover the reinstatement. The fourth ground of the landlord’s argument was dismissed by the court; a declaration would still serve a useful purpose.

Advice and action

The conduct of the landlord was not appreciated by the Court, as it was decided that the declaration requested by Colt was reasonable.

The landlord’s actions and refusal to enter into productive negotiations regarding what may be considered a non-contentious and commercially proper variation to the lease resulted in perhaps unnecessary court proceedings here. There may be future costs implications for the landlord as a result of its stance.

The court ordered a declaration in favour of Colt, stating that where the property was to be reinstated and the landlord had received insurance monies from the insurer, those monies were to be paid by the landlord to the tenant.

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