Uninsured risks are back on everyone’s radar owing to the uncertainties felt about the long term availability of flood risk insurance.
This is an important area for tenants who do not want to find themselves in a situation whereby they have a damaged unit that they can't trade from and which they are facing footing the repair bill for as well as paying rent.
Institutional landlords have had some sympathy with this and there has been a general willingness to agree uninsured risk provisions in commercial leases.
The question as to how risk is apportioned essentially boils down to the bargaining strength of both parties. The length of the lease term is also a key factor as is the nature and geography of the property.
We are finding tenants are looking to incorporate the following into leases to deal with damage caused by an uninsured risk:
- rent suspension;
- carving out any responsibility for damage caused by an uninsured risk (in both the repairing clause and from the service charge); and
- including an option to terminate.
Landlords must follow the market but similarly protect their investment and therefore would do well to keep an eye on the following:
- insured risks should be well defined and qualified to the extent that those risks can be insured at reasonable rates and on reasonable terms;
- ensure that there is no obligation to reinstate in the event of damage caused by an uninsured risk and that this is at the landlord's discretion;
- check that the tenant does not get to benefit from its own actions causing the landlord to lose insurance cover; and
- if the landlord looks to reinstate and completes its reinstatement works by a set date then the lease continues.