Destruction Of Premises
One of the worst situations that any business will ever have to face is the destruction of the premises from which it trades and the recent destruction of the Findus factory in Long Benton, Newcastle is a good example of where a risk has become a reality!
Tenants Need To Get The Lease Right
If you are a tenant then your lease should set out exactly what will happen in the event of damage or destruction and where the various responsibilities for rebuilding etc lie. If you are about to take a lease of premises then it's important that you understand exactly what will happen in a doomsday scenario.
Limiting Liability
It is vital for a tenant to insist that the landlord insures against the full range of likely risks and, if possible, tries to exclude its liability for any damage caused by any uninsured risks. In addition, the provisions which a tenant should insist be included in his lease fall broadly into two categories:
- those provisions which limit a tenant's liabilities during the period whilst the premises are destroyed or damaged;
- those provisions which allocate responsibility for returning the premises to their former state.
Rent Suspension
If the premises are destroyed or damaged then the lease should provide that all rental and other payments should be suspended for the period when the premises are uninhabitable. If the premises are served by common areas then the payment suspension should also apply if the common areas are destroyed or damaged so as to render the premises inaccessible or unusable. This rent suspension should continue for long enough to allow the reinstatement of the premises to take place. In addition, there should be a time period within which the landlord should complete any reinstatement works and if they haven't been completed within such timescale then the tenant should have the ability to determine the lease. From a landlord's perspective, this scenario should be broadly acceptable as a landlord will ordinarily include as one of its insured risks three years' loss of rent, thereby providing enough time to reinstate the premises.
Heads Of Damages Or Destruction
The landlord is normally the person responsible for insuring the premises and will also be responsible for reinstating/repairing the premises in the event of damage by an insured risk and in some instances by uninsured risks as well. A line will usually be drawn at the time of negotiation of the lease between those heads of damage or destruction which are the responsibility of the landlord and those heads of damages or destruction which are the responsibility of the tenant under a general repairing covenant. What is vital for any tenant is that it is aware from the outset as to exactly what its obligations are.
Grey Area Of "Uninsured Risks"
As mentioned earlier the grey area of "uninsured risks" has recently become a common bone of contention in negotiations between landlords and tenants. Ideally a tenant should (where the landlord is responsible for insuring the premises) insist that the tenant has no responsibility for damage caused by both insured and uninsured risks. In addition, the tenant should also insist upon an obligation upon the landlord to use all reasonable endeavours to reinstate the premises and/or the common areas in the event of their damage or destruction. This combined with a provision enabling the tenant to terminate the lease in the event that reinstatement or repair has not been completed by the end of the rent suspension period should provide a tenant with some comfort.
As with all provisions in the lease, the insurance provisions can be a minefield for the unwary and legal advice should always be taken by a tenant in order to ensure they are afforded adequate protection in the event of damage or destruction.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
