• 07 JAN 16
    How does flood damage affect commercial landlords and tenants?

    How does flood damage affect commercial landlords and tenants?

    Daniel Long, partner and head of commercial property dispute resolution at Woodcocks Haworth and Nuttall Solicitors, offers some practical advice for landlords and tenants whose businesses have been affected by the recent flooding.

    Parts of Lancashire, Cumbria and Yorkshire have recently been badly affected by torrential rainfall, leaving many businesses unable to trade as a result of flood damage. Some businesses rely heavily on trade in the New Year, so will need to get back up and running as soon as possible to minimise losses.

    When disaster strikes, issues regarding rent, service charge, security, cost of repair, temporary occupation and storage need to be considered as soon as possible to avoid incurring any irrecoverable costs and to prevent disputes between commercial landlords and tenants arising.

    Where tenants can no longer operate from all or part of their premises, they need to understand how this will impact on their obligations under the lease, who is responsible for restoring the premises and what costs will be recoverable.

    Responsibility for damage and rent

    Business tenants should consult their leases to establish who is responsible for insuring the premises, what risks need to be insured against and who is responsible for insuring against damage to belongings and goods. The wording of the insurance policy will also be important as landlords need to understand if the insurance will cover the loss of rent.

    Most leases will contain either a rent suspension or rent cessation clause entitling the tenant to stop paying all or part of the rent while the premises are unfit for occupation. However, this should always be checked as if rent is withheld and there is no such clause, an opportunistic landlord may be able to forfeit the lease. Tenants need to understand whether payment of other amounts, such as service charges, can also be withheld.

    Leases should clarify how the landlord is to apply any insurance monies received, when rent will become payable again, what happens in the event of a dispute and whether the damage caused may entitle the landlord to terminate the lease or the tenant to walk away without further liability. If the landlord is not obliged to insure against flood, landlords and tenants need to understand whether the lease deals with uninsured risks and identify who is responsible for repair.

    Temporary accommodation and security measures

    Tenants should check their business interruption policies to see what losses are covered. Temporary occupation and storage costs may not be recoverable, so if continued trade or service is so critical that alternative premises need to be sourced, tenants should take care not to bind themselves to a new lease for long periods. Tenancies at will or periodic tenancies may prevent any duplication in rent liability once the main business premises have been restored.

    Both landlords and tenants should consider additional security measures if the business premises have to be left vacant as a result of flood damage but it is worth checking first to see if such costs are covered under any insurance policy.

    Issues may also arise if the landlord reinstates the premises in a superior state and condition than before the flood damage occurred. The parties will need to understand if there is going to be any impact on the level of rent if there is a rent review or if the lease is renewed.

    While in the event of a flood commercial landlords and tenants may focus on protecting the short term interests of the business, there can be significant longer term implications if the terms of the lease and insurance policy are not fully understood or adhered to.

    To find out more about the implications of premises becoming unfit for use and occupation, or any other commercial property matter, call Daniel Long on 0161 761 4611 or email daniel.long@whnsolicitors.co.uk