We are facing unprecedented circumstances at present with the spread of COVID-19 affecting the way we work and go about our business. Business leaders and owners are having to adapt their working practices to ensure that as much as possible it is “business as usual”.
The health and wellbeing of staff and clients is a priority for most businesses. This means that in many businesses, offices and places of work are being emptied as people work from home where they have the possibility of doing so. Pubs and restaurants are starting to close, on the basis that it is safer to do so, and more costly to keep open and staffed than to close.
Tenanted property – the legal perspective
Tenants should be mindful of the covenants in their lease. Whilst “keep open” covenants are not generally speaking enforced by the Courts in England and Wales because of the difficulty in doing so, there may be additional covenants in the lease to ensure that the premises are not left unoccupied for periods of time, on the basis that empty properties can attract unwanted attention such as break-ins and vandalism.
Whilst it is usually a landlord who insures the property, a tenant will covenant to comply with the terms of the policy. Tenants should make sure that they are aware of those terms so that they don’t inadvertently breach those terms and in turn breach the lease. Depending on the terms of the lease, a tenant who breaches the terms of the insurance policy and invalidates a claim is usually liable to pay out the full cost of repairing the damage. Where the premises are part of a multi-let building the costs payable could extend to the damage caused to the remainder of the building as a result.
Whilst some leases may contain “uninsured risks” clauses, which allows a landlord to decide whether or not they wish to reinstate the premises, it is usual to exclude damage caused by an act or default of the tenant and therefore close attention should be paid to the provisions in the lease. Take legal advice if you are unsure
Advice from the insurance industry
Our advice to all businesses is to evaluate your business continuity plan, cover and determine alternative plans during this Coronavirus (COVID-19) pandemic. Key cover to review includes general liability, management liability, property and business interruption and travel/accident insurance.
The general rule of thumb is that business interruption insurance is not going to pay out as a result of a new and emerging disease like COVID-19. This is because no insurers are able to cover a risk that they cannot assess. New and emerging diseases come into this category and, whilst there may be cover in the future, there isn’t cover currently. This is not the case for every policy but is the case for the vast majority. Business interruption is, therefore, largely not covered for COVID-19 impacts.
Where properties may become unoccupied, all eyes should be on loss prevention and risk management.
- Arson is still one of the leading causes of fires on commercial premises. Arson insurance claims are generally much higher than fires started for other reasons because they usually occur out of hours when the fire has time to spread. You should assess your susceptibility to arson and produce a specific risk assessment covering areas such as waste collection, access to the building, who might be coming and going, removing ignition sources etc. Fire alarms, physical security, inspections etc should all form part of your risk assessment.
- Theft and vandalism will become much more of a risk where a property becomes unoccupied. Physical security, removing dangers such as loose exterior fittings to the building, broken glass, exposed wires etc (you may be legally liable if someone injures themselves on your property – even a trespasser), consider crime levels in the area, presenting the appearance of a building that is looked after will lessen the chances of crimes happening and will protect you in respect of your legal liabilities. Yutree can assist with checklists and more detailed advice on risk management in respect of theft, vandalism and your legal liabilities.
- Escape of water is a costly issue for property owners and unoccupied properties are much more susceptible to higher value claims in this area than occupied properties due to the length of time that water could be escaping before being detected. Consider the condition of your roof, whether water can be switched off at the mains, in periods of snow and ice – consider pipes and whether you can drain your system to prevent burst pipes. Where you are in a flood area, consider all protections that you can including contents being moved to higher shelving/floors where possible etc.
A common definition of an unoccupied building includes “any building that is wholly unoccupied, mainly unoccupied, disused, unfurnished or not in active use by you or any of your tenants for more than 30 consecutive days
. Different insurers specify different timeframes and you should check your own cover.
In summary, as well as speaking to your insurance broker to notify them of any forthcoming unoccupancy, and subject to taking advice on the terms of your lease we would recommend that you:
- ensure that the building is inspected internally and externally at least once a week and a written record of the inspection is maintained
- ensure that no accumulation of refuse or waste is allowed in the adjoining yards or space in or around the property
- secure the building and put all protective, locking devices and any alarm protection into effective operation
- ensure that the gas and electricity supplies are turned off at the mains (except electricity needed to maintain any fire or intruder alarm systems)
- any empty building or empty portion of the building must have all water supplies including sprinkler systems drained and isolated from the mains
Hewitsons LLP can offer advice on all commercial real estate matters
including the terms of your lease. You can contact us at email@example.com
or call 01223 461155.
can offer advice on your wording, cover or answer any concerns that you may have around your property insurance at this time firstname.lastname@example.org
or call on 01638 660651.
This article was co-authored by Susanne Hinde, Partner at Hewitsons LLP and Laura High, Director at Yutree.