Why you need uninsured risk provisions in your lease
You may be responsible for paying for repairs if the property you are renting is damaged or destroyed by an uninsured risk such as flooding. Steven Silver, a partner in our real estate team explains what you can do to protect yourself.
Landlords are usually required to insure commercial premises against risks such as fire, flooding and earthquakes (‘insured risks’). If the premises is damaged by an insured risk, they must reinstate the premises using insurance monies and suspend rents while it cannot be used by the tenant.
But what happens if an insured risk is excluded from cover by a landlord’s insurer or was never insured against in the first place?
What are uninsured risks?
Where insurers exclude certain risks from cover or landlords are unable to get insurance on reasonable terms, these risks may not be insured at the date of the damage or destruction.
The most common uninsured risk is that of flooding. Flood risk is geographically dependent and the greater a property’s risk profile, the more difficult it is for a landlord to obtain cover on reasonable market terms, if at all.
As extreme weather events increase in frequency and severity, the exclusion of flood risk from insurance cover is likely to become more and more common. Subsidence and heaves may also be excluded depending on location.
Advice for tenants on lease provisions
If a lease contains no clauses on uninsured risks, which is quite common in older leases, the tenant is usually responsible for repairing any damage caused by these uninsured against risks. Even if you are unable to use the premises as a result of the damage, you must continue to pay rents due under the lease and will also be unable to terminate the lease.
This may seem unfair, especially given you as tenant will most likely have paid for the insurance yet have little say in what risks are covered as it is the landlord who arranges the cover. Unfortunately however, this is the position unless the lease expressly includes uninsured risk provisions.
Where cover against an insured risk is not available, has been excluded by the insurer or is simply not within the list of insured risks covered, these uninsured risk provisions in a lease are designed so that the landlord is responsible for reinstating the premises at their own cost.
Of equal importance is that your rent is suspended until the premises can be occupied. If the landlord fails to reinstate within a specified period, you will generally be permitted to terminate the lease.
What can we do to help?
If you are in taking on a new commercial lease, we can assist you with the negotiation of these provisions (and many others). If you already have a lease which does not contain uninsured risk provisions, the parties can still agree to vary the terms of the lease, and we can assist in the negotiation (and potentially registration) of a deed of variation.
For further help and advice, call Steven Silver on 0113 244 0876 or email ku.oc1748014343.fcl@1748014343revli1748014343ss1748014343.
