Prezzo held a lease of the ground floor and basement of a building in Harrogate ("the Premises"). Pursuant to the lease, HPE was required to "insure the Premises in accordance with its obligations as the lessee" of a superior lease. The superior lease required HPE to insure, amongst other land, the whole building ("the Building") of which the Premises formed part.
Unusually there was not an express obligation in the lease on HPE to insure the Building.
Following damage by a fire originating from the Premises, the Building was reinstated by HPE's insurer who tried to sue Prezzo for the amounts it had paid out under the insurance policy to reinstate the Building. This is more commonly known as a right of subrogation which allows an insurer to claim against a tenant in the name of its landlord to recover monies it has paid out.
A tenant will be protected against an insurer's right of subrogation if a landlord insures to benefit the landlord and the tenant and the tenant pays the insurance premium.
Critically, the lease did not expressly place an obligation on HPE to insure the Building. There was an express obligation on HPE to insure the Premises but in the High Court's view this obligation could not be extended to include the whole of the Building.
As a result, HPE will be able to bring a claim against Prezzo for the loss and damage caused by the fire to the rest of the Building. Prezzo will be protected against the insurer's right of subrogation for the Premises.
In light of this decision, tenants should carefully review the insurance provisions before entering into a new lease, or taking the assignment of an existing lease. In particular, tenants must ensure that their landlord's insurance covenants relate to the entirety of the building or estate of which the demised premises form part.