Damage by Uninsured Risk: Share Your Views

Workplacelaw Network members and clients are invited to help with important research into the practice of handling uninsured risks in lease negotiations. The research is being carried out by CMS Cameron McKenna solicitors. Anyone who takes part in the research will receive a copy of the analysis.

Historically leases have been silent on the issue of apportioning liability between the landlord and the tenant in the event of damage to the demised premises by an uninsured risk. In practice this meant that tenants had no protection if the building demised to them was damaged by an uninsured risk - the tenants could potentially find themselves in a position where they could not claim a rent abatement and may even be obliged to rebuild the demised premises at their own expense.

Following the IRA bombing campaign in the early 1990's, tenants started to attempt to pass some or all of the liability back to the landlords in lease negotiations. Anchor tenants certainly had some success in this. The situation improved considerably by the introduction of Pool Re which by and large (although perhaps incorrectly) was regarded as sufficient protection at the time in the case of damage caused by terrorist activity. Pool Re was of no assistance in respect of other uninsured risks such as subsidence but tenants largely ignored this.

However, tenants' attention has once again turned to the issue. There are a number of reasons for this including:

- wider exclusions from buildings' insurance policies in relation to damage by terrorist activity – the impact being that the exclusions are now considerably wider than the top up cover provided by Pool Re;

- the new approach of the insurance industry in relation to damage by flooding that came into effect at the beginning of this year which means that flooding may increasingly become an uninsured risk; and

- recommendation 8 in the Code of Practice for Commercial Leases that "if the premises are damaged by an uninsured risk so as to prevent occupation the tenant shall be allowed to terminate the lease unless the landlord agrees to rebuild at his own cost".

We are now getting to the stage where the vast majority of tenants will raise the issue of damage by uninsured risks during lease negotiations. The purpose of this survey is to look at what exactly the market is agreeing as a matter of practice at the moment.

We would be grateful if you could spend a few minutes of your time contributing to the CMS Cameron McKenna analysis. The survey form can be downloaded in PDF format from:
www.law-now.com/law-now/uninsuredrisksurvey.pdf

When you have completed the questionnaire, please fax it back to Emma Hawkins at CMS Cameron McKenna at 020 7367 2000. All respondents will receive a copy of the analysis.
This document is for general guidance and research purposes only, and does not purport to give professional advice. Please check the date at the top of the article; the Workplace Law Network retains historic articles for general research.