Storm Ciara – Ready for the clean-up? | Commercial Property
Have you checked the terms of your insurance and your lease recently to see if you are covered in the event of a storm or flood? All too often these matters are not checked until the worst has happened and following the devastation of a flood the last thing anyone needs is to find they have inadequate or worse, no insurance cover.
The recent Storm Ciara battered various parts of the country with strong winds and heavy rain leading to many homes and businesses having to evacuate. Statistics reveal that 5.2 million properties in England are at risk of flooding with clear-up costs costing the UK billions. The Association of British Insurers’ (“ABS”) reported that previous widespread flooding cost, in insurance claims alone, more than £3bn and as the intensity and severity of flooding increases the importance of having comprehensive and effective insurance cover is becoming more and more critical.
In a full repairing and insuring (FRI) lease, the landlord usually has the obligation to ensure that insurance is in place for the building. Landlord’s prefer this as they can control the amount of cover and ensure that the premises are fully protected, typically the cost of the insurance is passed on to the tenant.
Most commercial leases will contain a definition of “Insured Risks” which explicitly set out the risks the Landlord is to insure against, typically including (among other risks) loss or damage by fire, malicious damage, storm, bursting or overflowing of water tanks etc. and flood. In addition to checking that both flood and storm are included as Insured Risks tenants should also check the landlord’s policy to ensure that flood and storm are actually included.
In addition, following damage by an Insured Risk, tenant’s should also ensure that their lease requires the landlord to make a claim under the insurance policy and to use the proceeds to repair any damage. Crucially the lease should also include a “Rent Suspension Clause” so that if the property cannot be used or is inaccessible then the tenant is not obliged to pay the rent.
Don’t leave it too late
The insurance provisions in a lease are a key risk management tool. Both landlords and tenants should check that they have adequate protection in place, both in terms of the insurance policy and the wording in the lease. Landlords and tenants should use Storm Ciara as warning to check where they would stand should the worst happen and premises are damaged or inaccessible by storm.