Many commercial property owners and occupiers whose businesses have been destroyed or impacted during this month's riots are just beginning to come to terms with the true cost of the damage caused. A number of individuals whose homes have been affected also face the severity of the impact. Businesses and individuals not directly affected may now also be aware, following the riots and student demonstrations, that their properties might be at risk in the future and seek to know the types of compensation and support available in times of civil unrest.
Insurance and insured risks
Any owner or occupier will immediately turn to the terms of their buildings insurance policy when it appears there has been damage to property. However, there are a number of things these policyholders must bear in mind.
First, they will need to establish that their cover is adequate and that the "insured risks" include riot as one of the risks insured against. The list of insured risks changes from one policy to another and there may be circumstances where policies exclude liability for acts of civil unrest, commotion or riot. Policyholders will have to be careful about what exactly was the cause of damage in every particular circumstance.
Second, insured persons should always be aware of their terms and conditions relating to notification. It may be that some policies have strict time limits on informing insurers of a claim. There may also be a need to permit assessments to be carried out, something particularly pertinent to those businesses who wish to start trading again almost immediately after any violent disorder.
The Riot (Damages) Act 1886
When proprietors find that they are under-insured or not insured, there is scope to revert to a 125 year old statute for compensation. The provisions of the Riot (Damages) Act 1886 allow for a claim for compensation out of the "police fund of an area" to "any person who has sustained loss by injury, stealing or destruction" caused by persons "riotously and tumultuously assembled together".
In legal terms, the definition of a riot (by virtue of the Public Order Act 1986) is a gathering of 12 or more people who use or threaten unlawful violence for a common purpose and give rise to a fear for personal safety.
However, it should be kept in mind that claims under the 1886 Act could depend greatly on the circumstances. Location and timing are important and so also is whether the police are prepared to agree that riots in accordance with this definition were under way at all (for example, there was some debate whether there was any common cause shared by the rioters this summer).
A claim under the 1886 Act has to be lodged within 14 days of the incident. However, speaking to the House of Commons on 11 August, David Cameron announced that the deadline for claims arising from the riots in August would be extended to 42 days. There is no maximum limit to the amount that can be claimed, although there is no provision to make claims simply for interruption to business.
Landlord and tenant concerns
Where a business tenant occupies a property, obligations to insure and reinstate the property will be governed by the provisions of the lease. When a property is damaged and the insurance covers the loss, the insured party will be responsible for seeking a claim from the insurer, rather than from the compensation fund under the 1886 Act.
The lease might also provide for relocation, suspension of rent, full reinstatement of the property or determination of the tenancy. Landlords and tenants will have to be aware of the precise wording and terms governing each and every case.
Government and financial help
Businesses affected by the August riots are entitled to apply for support from Government and financial institutions. David Cameron announced a temporary suspension of business rates for seriously affected properties. In addition, the planning authorities will give priority to applicants recovering from the riots, and valuation authorities will work to remove liability for council tax where property is uninhabitable. Her Majesty's Revenue and Customs has also announced that they will work with directly affected businesses to create repayment schedules for current liabilities, and provide alternative means of dealing with any lost financial records.
At the same time, a number of the UK's largest financial institutions have introduced emergency financial support schemes. These are designed in part to mitigate some of the cash flow pressures felt by businesses that find themselves having to restock or repair damaged buildings.
Who pays the ultimate price?
The local police authority is responsible for paying successful claims under the 1886 Act. There is concern that such responsibility will drain these authorities of current funds, and there is therefore a strong possibility that the cost of riotous destruction will be passed on to the local council tax and business rate payers. The Government, however, is pledging to support the funds to make sure everyone affected is compensated, which may avoid this direct cost, albeit the taxpayer still pays.
It is also worth noting that when a property owner or occupier has made a successful claim against their insurers, the insurance company is at liberty to lodge a claim under the 1886 Act for compensation equal to the amount paid to a policyholder due to riot damage. The rationale behind this is to avoid any drastic increases in annual insurance premiums due to such acts.
The Government and consumer groups have clearly been quick to reassure property owners and businesses that genuine losses will be covered. Insurance companies are taking their responsibilities seriously and have produced helpful guidance and claim forms. Genuine claims will also be permitted under the centuries-old statutory provisions.