By Jennifer Hotston, Charles Russell LLP
Are you covered?
If your charity occupies property under a lease, you might want to check whether the lease deals with what would happen if the property is damaged or destroyed by a risk not covered by insurance. You might be surprised to find out that many leases do not deal with this possibility.
Flooding has always been an issue in the UK. However, it is predicted that over the next century flooding will become even more severe due to the effects of climate change. Stories have appeared in the press recently indicating that insurers are refusing to insure properties with inadequate flood defences. If insurance is not available for flood risk because of the area in which the property is situated, flood damage would be an uninsured risk.
Who should pay?
If a lease doesn't cover what would happen if a property is damaged or destroyed by an uninsured risk, the landlord could charge the charity the cost of repairing such damage through the service charge. The charity may also remain liable for paying rent for the property during the period that it cannot use it.
To repair or not to repair
Charities should make sure that their lease addresses this situation. The lease should include a right for the landlord to decide whether or not he/she wants to repair any damage caused to the property within a certain time period. If the landlord does wish to repair the damage, this should be at his/her own cost. If the landlord does not want to fix the damage, then either the charity or the landlord should be able to bring the lease to an end.
Avoid a double blow
The charity and landlord will also need to decide whether the charity should pay rent for the period that it is unable to make use of the damaged property. The charity might prefer to move to alternative premises rather than pay rent for a property it cannot use. However, if the property is in a good location, or the landlord will be able to repair the damage quickly, it might be better for the charity to pay rent during this time instead of incurring the cost of relocating to alternative premises. Either way, it is important to make sure that provisions are included within a lease to deal with this occurrence, as without them, the charity may have to deal with the double blow of paying to repair the damage and paying rent for a property that it cannot use.
The above is a general overview and we recommend that independent legal advice be sought for your specific concern.
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.