As business premises are closing amid the current coronavirus pandemic, what do you need to know?
As pubs, restaurants, cafes and an increasing number of shops are being forced to close for the foreseeable future, business owners’ minds are understandably focussed on the financial implications. Business tenants will be having difficult conversations with their landlords about how/when they can next pay the rent.
Whilst landlords and tenants have more than enough on their plates at the moment, they both need to be thinking about the practicalities of premises being shut up for months on end. What happens if the premises are broken into or vandalised?
The usual position with a business lease is that the landlord insures the building and the tenant pays towards the insurance premiums. If the premises are damaged/destroyed, the landlord makes an insurance claim and uses the insurance proceeds to repair the damage. The tenant’s repair clause says the tenant isn’t responsible for repairs if they are caused by an insured risk.
However, most leases will say that, if the landlord’s insurers don’t pay out because of something done or not done by the tenant, then the tenant has to reimburse the landlord for the cost of doing the repairs. This could be disastrous for a tenant already struggling to keep their business afloat.
The tenant may be under a contractual obligation to reimburse the landlord for the cost of repairs in those circumstances but this is of little use to a landlord if their tenant has no means to pay them.
So what do we do?
Landlords should know which of their tenants are likely be locking up in the near future. Landlords need to be checking the small print in their buildings insurance cover to see what additional steps they may need to take to keep their insurance cover valid. For example, does the policy have provisions about how long the premises can be left empty for? On a practical note, are the windows secured/do they have shutters etc.?
Tenants should ask their landlords what additional practical steps they should be taking to ensure the security of the premises/that the landlord’s insurance policy isn’t inadvertently invalidated. Tenants should keep a written record (e.g. an email trail) of the discussions they have had with their landlords.
Not all leases are the same and both landlords and tenants need to read through their leases carefully to see how they apply to these circumstances.
Please do feel free to call one of our Commercial Property experts at Guest Walker if you have any queries. We are here to help.