Following the Government’s decision to enforce closures of a large number of businesses in the UK, understandably, the biggest concern for those affected is the immediate financial impact and that on any employees. It is easy to overlook the impact on, and threat to, the business premises itself.
This could prove costly both in the short and longer term. It is not just an issue for premises occupiers, but owners of premises which are let. Empty premises are often targeted by vandals, trespassers, or worse so we recommend prompt action as set out below.
Almost all leases contain a repairing covenant requiring the tenant to keep the premises in repair. Where damage has been caused by an insured risk (which would normally include a break-in) the cost of the works would typically be paid under the insurance policy. However, the landlord may be precluded from claiming under the policy if it has not ensured that the tenant has complied with the terms of its lease.
In instances where the insurer will not pay out, there will almost always be provision in the lease which requires the tenant to pay for the cost of the works. Such repairs would not typically be covered by a tenant’s contents or business insurance, and so the tenant would have to fund the works itself to remain compliant with its repairing obligations.
Landlords should not just assume that this is the tenant’s problem. If the tenant is unable to take necessary security measures because of a cashflow issue, consider cost-sharing. If the premises are damaged as a result of a break-in, whilst there may be a claim against the tenant for the cost of making good the damage if the insurer will not pay out, there is no guarantee of actually recovering any monies from the tenant.
It is also important to note that this could impact upon rent suspension as well. If the policy is void in respect of the cost of the works, it may well also be void in respect of the landlord’s cover for loss of rent. If it is, the tenant will not be entitled, under the lease, to have its rent suspended for the period during which the premises are unusable owing to the damage.
A breach of such obligations could, as above, mean that the insurer will not pay out and will leave the tenant with the bill, or the landlord with a claim against a tenant who has no means to pay.
Please refer to our article: Coronavirus update – insurance implications of unoccupied premises for more information.
If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Charlotte Curtis, Senior Associate in Michelmores’ Property Litigation team.
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This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.