By Claire Miller, Partner and Head of Property, Penman Sedgwick LLP

What happens if damage is caused to a property but the landlord’s buildings insurance does not cover it, either due to an exclusion imposed by the insurers or because insurance for the particular risk is not available? Who is responsible for repairing this damage: the landlord or the tenant?

As ever, it will depend on the terms of the lease. However, tenants may find that the liability rests with them because the tenant’s repair covenant only excludes liability for damage by Insured Risks (as defined in the lease), and the landlord’s reinstatement obligations only apply to damage by Insured Risks – leaving the tenant to bear the responsibility (and cost) related to damage by uninsured risks. The rent suspension clause in such leases will probably also only be triggered by damage by Insured Risks, so that not only does the tenant have to carry out the necessary repair works at their own cost but there is no relief from the obligation to pay rent whilst the property cannot be occupied or used due to the damage caused by the uninsured risk.

It is now becoming increasingly common for tenants to seek to exclude such liability, so that the responsibility for uninsured damage is dealt with more fairly. How might this be addressed in the lease? The tenant should consider making the following proposals to the landlord:

  1. Excluding from the tenant’s repair covenant any liability for Uninsured Risks (and including a definition of this term), as well as Insured Risks.
  2. Providing for the rent suspension provisions to apply when damage is caused by an Uninsured Risk, as well as an Insured Risk.
  3. Imposing an obligation on the landlord to elect within a defined period of time after the date of damage by an Uninsured Risk whether to terminate the lease or to carry out the works required to reinstate the property at the landlord’s own cost – and if the landlord does not make the required election within the required period the tenant should then be able to terminate the lease.

Whether the landlord agrees to any of these proposals will (to a large extent) depend on the relative bargaining strength of the parties. However, it is of note that the 2020 Code for Leasing Business Premises states that leases should include provisions along the lines Points 2 and 3 above. This reinforces the tenant’s argument, but the landlord would certainly want to ensure that the definition of Uninsured Risks is clearly drafted, and does not include damage caused by the tenant (or someone under the tenant’s control).

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