When you are a tenant or a landlord of a commercial property, it is important that the lease you have outlines exactly what the insurance details are and lists who you will be insured with and what will be covered. If you have a silent lease, then there is no obligation from either party to insure the property and/or pay out insurance money received when reinstating it. Here are the insurance issues that will need to be decided on for both tenants and landlords.
Who Will Insure?
For most leases, landlords will usually agree to insure the property as it is typically in their best interests to do so. Occasionally, when a tenant is looking to take a lease of a whole building and pays a large premium with minimal ground rent, the tenant may then seek the arrange the insurance themselves, but this is quite rare.
Despite landlords agreeing to insure, they will more than likely look to recover the costs of this from the tenant. Landlords are typically more likely to want reimbursement for costs, including public liability insurance, insurance for loss of rent, professional fees and chartered surveyors. Landlords need for insurance is subject to any limitations, exclusions, excesses and conditions otherwise imposed by the insurers.
What Premises Should Be Insured?
If a tenant is taking out a lease of a whole building, then the landlord’s insurance covenant will protect the premises as outlined in the lease. If it’s part of a building, then the landlord will need to insure the whole building, otherwise, they could risk those sections of the building being damaged with no-one required to make the necessary fixes. This could then affect how the business premises look, and may even prevent access to the building.
What Happens If The Property Is Damaged By An Insured Risk?
If this scenario was ever to arise, then the lease should provide the adequate policies as outlined in the contract. In this case, the landlord should disclose the insurance money that they receive by reinstating the property or the damaged element. The landlord’s agreement will typically be caveated so that the landlord isn’t required to do so until they receive the necessary consents and money. Often, landlords will outline that they won’t provide replacements for accommodations/facilities, provided that it is similar to what was there before any damage.
It’s worth making a note that landlords aren’t usually required to do repairs or rebuilds if the tenant hasn’t paid appropriate insurance money. The lease will often set out detailed insurance agreements relating to the occupation and use of the property, with which the tenant must comply with. This part can often be tricky, so it is best to seek advice from a professional who can help you in this situation, whether it’s your commercial property agents or an independent insurer.
Do I Still Have To Pay Rent in the Event of Damage?
This is dependent on what is outlined in the lease contract. In the case that the damage has been caused by an uninsured, then the rent will still be payable regardless of whether the premises are fit for use. Additionally, the lease will need to insure any loss of rent for a fixed period of time. This is usually 3 years with a commercial premises. If the property is damaged or destroyed by an insured risk and has made it unfit for occupation, then the lease will state that rent will be suspended for the period.
Keep in mind, most cases will vary on the terms and conditions set out in the lease. This article should only be used for guidance and not reliance. Please consult with your legal team if you are unsure of your position, or get advice on your case.