Stormy weather ahead - navigating property damage and leases for landlords and tenants
In recent years, the effect of climate change has become increasingly prevalent, and the environmental effects are being felt worldwide. The UK and Ireland are no exception, and the recent weather has again focussed minds to consequences of property damage for landlords and tenants arising from unprecedented flooding and storms.
In this article, we look at the most common position in leases and tenancy agreements with respect to property damage and interference with occupation. We provide guidance to both landlords and tenants in the event of storm damage and what steps can be taken to limit what can sometimes be devasting damage to property and business operations.
The frequency and severity of flooding can have significant consequences for commercial properties, and it is therefore essential that landlords and tenants understand their respective obligations and protections under the terms of their leases. A commercial lease will contain covenants with respect to repair and insurance that outline the extent of the responsibilities of both landlords and tenants. Likewise, a lease may also provide for a rent suspension in the event of catastrophic damage which may prevent full or partial occupation of the property. Upon any damage to the property, the landlord and tenant should familiarise themselves with the lease drafting and seek legal advice if in any doubt.
A tenant’s repairing obligation will typically only extend to what is defined in the lease as the ‘premises’. Tenants must therefore be acutely aware of the exact extent of the property demised under the lease. In a lease of the entire property, the tenant typically assumes responsibility for repairing the entire building and in a lease of part of a building the repairing obligations are commonly split between the parties with the landlord retaining obligations for structural repair which will usually include the roof and external parts of the property.
The scope of the repairing obligation by either party will also be influenced by the insurance provisions in the lease. The Lease will also determine if the landlord or tenant is responsible for insuring the premises.
Where the tenant is responsible for repair of the premises, they should examine whether their repairing obligation excludes any damage caused by an ‘insured risk’. The lease would typically include the definition of an insured risk which usually includes damage from fire, storm, flooding etc. If insured risks are excepted from the repairing obligation then the landlord should be quickly notified of any damage and the tenant should request that the landlord reinstates the damage. If the premises cannot be used for the business use, the tenant may also avail of a rent suspension provision, if the lease includes provision for this.
If the property has previously been affected by flooding, then it may not be possible to obtain insurance for flood damage. This information needs to be disclosed to the tenant during the legal due diligence prior to commencement of the lease. It also would be prudent for the tenant to request a copy of the policy form the landlord to ensure that all the ‘insured risks’ as defined in the lease are indeed included in the policy, and there are no gaps.
Where the Landlord is responsible for repair of the building, then the lease will normally provide that the landlord reserves the right to recover the costs of repair to any common areas (often the roof and structural parts of the building or estate) pursuant to service charge provisions of the lease. Although the tenant might not face the initial repair expenses, these costs are expected to be recovered later in the financial year and the tenant should take this into consideration.
A tenant may also want to consider business interruption insurance which covers the tenant for loss of income during periods they cannot carry out business as usual due to damage or destruction of the property. It is the responsibility of the tenant to obtain their own business interruption insurance.
Recent flooding events in Northern Ireland serve as a stark reminder of the importance of properly addressing and understanding your obligations in relation to repair and insurance under the terms of your lease. If your property has been affected by the recent flooding, we would encourage early discussion with your landlord or tenant to address the damage and mitigate loss.
If you would like any further information or advice, please contact Victoria Kinkaid from our Real Estate team.
*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice.