Insurance is one of the essential aspects of commercial property that no landlord, tenant, owner or occupier can afford to be without, and every contract or lease will need to provide for the subject-matter of that document to be protected to some extent. Having adequate cover, and, in the case of a landlord, the ability to recover the costs of the insurance, is essential and must be carefully considered both when instructing legal advisors, and when insurance obligations are being complied with during the term of the lease. Two recent English cases – Green v 180 Archway Road Management Co Ltd  UKUT 245 (LC) and Stannard (t/a Wyvern Tyres) v Gore  EWCA Civ 1248 illustrate the importance of keeping on top of insurance obligations.
Insuring in accordance with the terms of the contract
The outcome in Green v 180 Archway Road Management Co Ltd (an appeal to the Upper Tribunal of the Lands Chamber from the Leasehold Valuation Tribunal (LVT)), was that a landlord could not recover insurance premiums from a tenant for four out of five years because the landlord had failed to insure the property in accordance with its obligations contained in the lease. The lease required the landlord to insure the building in the joint names of the landlord and the tenant, and then for the tenant to reimburse the landlord for one quarter of the cost of the premium.
The premises to be insured consisted of a ground floor shop with three flats above. Archway Road Management Co managed the properties and arranged the insurance. However, over the five year period under consideration (2005 – 2010), it was only in the first year that the interest of the tenant – Ms Green (along with the names of the other two flat owners and their mortgagees, and in addition the shop owner) – was specifically named on the certificate of insurance. Although the insurance policy contained a “general interest” clause, which Archway contended adequately covered the interests of all the tenants and their mortgagees, the Tribunal disagreed, and concluded that it was not a question of whether insurance had been effected which would have been sufficient if the appellant had made a claim, but whether the respondent landlord had complied with its covenant:
“to insure in the names of joint names of the landlord and the lessee of each and every part of the building”.
The tenant’s obligation was to pay to the lessor a proportion of the premium incurred in insuring the building in accordance with that covenant. To be able to recover payment from the tenant under her covenant, the landlord must show that it has placed insurance in accordance with its covenant. Despite the fact that the tenant was at all times properly insured, the landlord failed to recover the full premium for each year because it had failed to insure the property in joint names, as required.
Although this case relates to residential property, the wording of the lease could equally apply to a landlord’s obligation in a commercial lease. It is a useful reminder that landlords must effect insurance in strict compliance with their obligations in the lease or risk being unable to recover the full cost of the insurance. Care must be taken when reviewing the lease terms and when putting insurance in place to adequately cover those terms. Insurance in joint names can confer significant benefits for tenants, such as insurance monies being paid out jointly to the landlord and tenant, which brings the added benefit of having a degree of control over the application of monies towards reinstatement. The tenant will also be notified if the policy lapses. Therefore where insurance must be put in place in joint names, and the tenant is obliged to pay towards the cost of this benefit, the landlord’s obligations to procure compliance with its covenants is extremely important, especially where compliance is a pre-condition to payment.
Maintaining adequate insurance
Despite its somewhat unusual circumstances, the case of Stannard (t/a Wyvern Tyres) v Gore serves as an important reminder of the need to maintain adequate insurance for your property, including for losses caused by fire.
Mr Stannard operated a vehicle tyre supply and fitting business, with an estimated 3000 tyres stored on his premises. A fire broke out as a result of faulty wiring or electrical appliances on the premises, and spread to the neighbouring premises, fuelled by the ignition of the tyres.
Mr Gore, the neighbouring, and uninsured, landowner, brought a claim for negligence and strict liability under the long established case law principle from the 1868 case of Rylands V Fletcher: that where a landowner who has brought an exceptionally dangerous or mischievous “thing” on to his land, and that "thing" escapes from his property, resulting in damage, that landlower is liable. However, in this case the large stacks of tyres were not by themselves the dangerous or mischievous thing, and it was the fire that escaped, not the tyres. Keeping a large quantity of tyres on a tyre-fitters’ premises could not be said to be an extraordinary or non-natural use of the land, because of the manner in which they were stacked. Accordingly Mr Gore's claim failed.
Given this case demonstrates the very rare circumstances in which a claim for fire damage will succeed without proof of negligence, property owners and managers should ensure that their insurance policies are adequate, and not to let them lapse at the end of the insured term.
To read the decision in Green v 180 Archway Road Management Co Ltd click here.
To read the decision in Stannard (t/a Wyvern Tyres) v Gore click here.