Buildings Insurance, Lease Covenants and Obligations COVID-19
Leases commonly include an obligation on the Landlord (or the Tenant, if the whole of a property is leased) to insure against named “Insured Risks” connected to damage and destruction of the Property which in turn can trigger:
- Rent suspension provisions
- Termination rights
However due to Buildings Insurance usually being linked to damage or destruction, the effects of COVID-19 may not constitute direct physical loss or damage nor is it likely to be covered by any of usual “Insured Risks”.
Contamination as a result of COVID-19 could be regarded as damage to the Property and may trigger cover but insurance policies may contain specific exclusions for such events relating to viruses.
We recommend you consult your insurer and/ or insurance broker for further information if you are unsure if your existing Buildings Insurance covers COVID-19 events.
It is also worth noting that Tenants should inform the Landlord if they have vacated the Property as it may have implications on the validity and/or extent of cover of the Buildings Insurance (assuming the Landlord insures the Building). Usually a Tenant will be obligated under the terms of the Lease to inform the Landlord of any material changes relevant to the insurance and to comply with any requirements of the insurers.
Insurers often specify that vacant properties be properly secured and insurers may also limit their cover as a consequence. Therefore a Landlord should check their policy and inform the Tenant of any such requirements they need to adhere to. Where cover is limited, this may affect the Tenant’s liability for damage to the building resulting from a risk which would typically be covered by the Buildings Insurance but where cover for that particular risk has been withdrawn due to the building being unoccupied.
Written by, Annie Webb, Solicitor at Bennett Griffin LLP
Other articles in this series:
- Does your commercial contract contain a Force Majeure clause?
- Commercial Lease Rent Payments, Enforcement
- Delays to Commercial Property Transactions
- “Exit” options in existing Leases
Please note that this update is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.
If you are a Landlord or Tenant who is unsure how their obligations in their Lease will be affected as a result of the building being unoccupied and/or any changes in the buildings insurance cover, please get in contact with us to discuss further – Simply call the team on 01903 229999, visit the team page to speak to the relevant department or complete the form below.