Wake-up call: Who pays for uninsured risks on your property?

Should the landlord pay for any damage that is not covered in your buildings insurance, or are you liable? And should you pay rent on uninhabitable premises? Clare Timmings looks at how the law works

Last week your riverside restaurant flooded due to torrential rain causing the river to flood. This damaged the restaurant and you have had to close to get the repairs done.

You have spoken to the landlord and they have told you that unfortunately, due to previous flooding (the river has burst its banks three times in the past five years), the insurance was too expensive and the buildings insurance did not cover flooding.

So you will have to pay for the cost of repairing the damage to your restaurant and still pay the rent. Is this correct?

The law

Most well-drawn-up leases will contain a full list of risks against which the landlord has to insure, and this would usually include flooding. Often the lease will say that the risk is only insurable if insurance is ordinarily available on reasonable terms acceptable to the landlord and not excluded by the policy wording.

In this situation, insurance may only be available at a large premium or a significant excess, so the landlord could be correct.

Expert advice

When you buy a lease of premises you should ensure that your solicitors do all the appropriate checks to see if the property has been subject to a history of flooding or if there have been any difficulties with obtaining insurance.

The wording of the lease should also be carefully considered to make sure that, where appropriate, and even if it's at significant additional cost, the landlord is obliged to insure against the particular risk and also to make it clear who is responsible for any damage that has been caused.

A well-advised tenant should also ensure that their lease allows them to exclude damage by risks not covered by the insurance (uninsured risks) from their repair obligation and their liability to contribute towards the service charge (if the property forms part of a larger building).

The rent should also be suspended while the property cannot be used, and the landlord is obliged to elect to reinstate the damage at their own cost within a given period of time, failing which the tenant can terminate and walk away from the lease.

To-do checklist

• Instruct your solicitors to undertake full due diligence, including commissioning a flood risk report to assess the damage caused not just by flooding from rivers or the sea but also ground water or surface water flooding (which is becoming increasingly common with overdevelopment);
• If this identifies that the property is in a high-risk area, ask for details of the landlord's insurance and check what terms are available for cover in respect to flooding and if it is viable economically;
• If insurance may be subject to a significant premium or excess due to the higher risk, consider if the property suits your requirements and if it does ensure that your solicitors asks that the lease excludes liability for uninsured risks;
• If the landlord is resistant to this you may be able to agree a compromise, where the landlord bears the responsibility of putting right any damage at its own cost but you have to pay a proportion of your rent for a fixed period of time while the landlord makes the repairs.

Beware!

If your lease does not contain sufficient safeguards to protect you if there is damage caused by uninsured risks, you may have to pay for the damage and rent for a property that you cannot use.

While business interruption insurance may be available to cover you for the loss of business income during that period, this will not be sufficient to protect you against the significant costs of restoring the property so that you can reopen.

Contact

Claire Timmings is a retail and leisure property lawyer at Charles Russell Speechlys LLP claire.timmings@crsblaw.com