Partner Katja Wigham, in our Commercial Property team, discusses whether insurance can help to cover commercial property related losses incurred by landlords and tenants.
With the COVID-19 pandemic sending shockwaves across the commercial property industry, landlords and tenants alike are suffering from their premises being empty and operations ceasing. Many tenants are struggling to pay their rents and we have numerous agreements being reached with landlords under which rent are being reduced, deferred or even written off.
We have been asked by several clients whether insurance can assist to cover the loss.
Loss of rent insurance
Most landlords will have loss of rent insurance to cover the risk that, in certain circumstances, they will not receive the rent. However, such policies are almost always linked to physical damage to the property caused by certain insured risks and would not cover situations such as the COVID-19 pandemic.
Landlords should however check their policies in case they have purchased extensions which cover the impact of notifiable diseases or denial of access to the property due to government action.
Most leases will include rent suspension provisions under which payment of rent will be suspended on the happening of certain insured risks. Many leases will now also contain cover against “uninsured risks” which are generally risks which would have been covered by insurance but for which, for some reason, insurance is no longer available.
However, these provisions will usually be linked to physical damage to the property which prevents access to the property rather than denial of access as a result of a pandemic.
Tenants do however, have protection against forfeiture or action to recover a debt by their Landlord until at least 30 June 2020 under the Coronavirus legislation.
Business interruption insurance
Tenants should carefully review their business interruption policy (and a Landlord should ask them to do so before agreeing to rent reduction or suspension arrangements), to see whether it will cover losses as a result of COVID-19. However, once again, these policies usually only cover business interruption caused by physical damage to the property. Some policies may however include extensions to cover notifiable diseases or denial of access. In such cases, a tenant should take advice and make a claim as soon as possible.
Insurance is therefore, not the likely solution to the financial impacts of COVID-19 and landlords and tenants are likely to have to continue to work together over the coming months to ensure business survival beyond COVID-19.
For further information or legal advice, please contact firstname.lastname@example.org or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.