When negotiating any commercial lease (in circumstances where the landlord insures the building), it is essential for prospective tenants to consider the position they would be in if damage is caused by an uninsured risk.
Ideally, tenants should seek to negotiate a package of provisions along the following lines – which is broadly consistent with the current market norm.
If the demised premises (or the building of which they form part) are damaged or rendered inaccessible or unusable following uninsured damage, then:
- the rent should be suspended until the damage has been reinstated by the landlord;
- the tenant should not be liable to repair any such damage itself;
- the landlord should not be entitled to recover any reinstatement costs through the service charge;
- the landlord should have a limited time period (usually no more than 12 months) to elect whether or not to reinstate the damage at its own cost. If the landlord does not elect to reinstate then either party should be able to terminate the lease;
- if the landlord does elect to reinstate, it should then have a further fixed period within which to complete the reinstatement works, or else the tenant can then terminate the lease.