RE11
Leasehold Covenants – Relates to land held under lease
Insurance provisions
It is clearly important, from both a landlord’s and a tenant’s perspective, to ensure that ADEQUATE
PROVISIONS are in place to insure the property against damage by fire, flood, etc.
From a landlord’s perspective, the building forms the physical basis of his investment, and so he will
want it to be reinstated in the event of damage.
Equally, the tenant will want the building to be reinstated so that he can continue to occupy the let
premises as intended under the lease.
In the case of a letting of WHOLE, the tenant could be made solely responsible for insurance.
Alternatively, the landlord could take out the insurance and charge the tenant for the cost, which has
the advantage of giving the landlord the comfort that insurance is actually in place.
In the case of lettings of PART, the most commonly adopted approach is for the landlord or
management company to insure the whole block, with the cost being passed on to the tenants through
the service charge or as a separate insurance rent.
Whether the letting is of whole or part, the following matters should always be CHECKED from both the landlord’s
and the tenant’s perspective:
Things to look out for when reviewing the lease…
General → risks insured against
→ amount of cover
→ application of monies
Risks covered → risks insured against will often be under the definition of ‘Insured Risk’ – obligation to insure is
not enough, must be stated expressly
Amount → ensure that the property is properly insured to its full reinstatement value, this should include:
costs of demolition and site clearance
professional fees
an allowance for inflation
rent in case of rent suspension
Application of → should be a covenant by the landlord to use the proceeds to reinstate the premises
policy moneys → ideally the tenant would like to include an obligation that any shortfall in proceeds will be paid
out of landlord pocket
→ if reinstatement is possible then check what is done with the proceeds
ideally would be shared if the tenants have been paying a premium
Rent suspension → rent is payable even if the property is rendered unusable
→ lease should provide that the payment of rent will be suspended during any period that the
premises cannot be occupied following damage by an insured risk
→ landlord can insure against the loss of rent
→ usually insurance is for a set risk period
typically for 3-5 years
therefore, landlord may attempt to limit rent suspensions accordingly
Termination → unless lease states otherwise, if the building is totally destroyed then frustration will only apply
in exceptional circumstances
→ lease will often give the right to terminate the lease if reinstatement is impossible
→ tenant should seek to ensure that he has this right too, if the premises have not been reinstated
by the end of the rent suspension period
1
Leasehold Covenants – Relates to land held under lease
Insurance provisions
It is clearly important, from both a landlord’s and a tenant’s perspective, to ensure that ADEQUATE
PROVISIONS are in place to insure the property against damage by fire, flood, etc.
From a landlord’s perspective, the building forms the physical basis of his investment, and so he will
want it to be reinstated in the event of damage.
Equally, the tenant will want the building to be reinstated so that he can continue to occupy the let
premises as intended under the lease.
In the case of a letting of WHOLE, the tenant could be made solely responsible for insurance.
Alternatively, the landlord could take out the insurance and charge the tenant for the cost, which has
the advantage of giving the landlord the comfort that insurance is actually in place.
In the case of lettings of PART, the most commonly adopted approach is for the landlord or
management company to insure the whole block, with the cost being passed on to the tenants through
the service charge or as a separate insurance rent.
Whether the letting is of whole or part, the following matters should always be CHECKED from both the landlord’s
and the tenant’s perspective:
Things to look out for when reviewing the lease…
General → risks insured against
→ amount of cover
→ application of monies
Risks covered → risks insured against will often be under the definition of ‘Insured Risk’ – obligation to insure is
not enough, must be stated expressly
Amount → ensure that the property is properly insured to its full reinstatement value, this should include:
costs of demolition and site clearance
professional fees
an allowance for inflation
rent in case of rent suspension
Application of → should be a covenant by the landlord to use the proceeds to reinstate the premises
policy moneys → ideally the tenant would like to include an obligation that any shortfall in proceeds will be paid
out of landlord pocket
→ if reinstatement is possible then check what is done with the proceeds
ideally would be shared if the tenants have been paying a premium
Rent suspension → rent is payable even if the property is rendered unusable
→ lease should provide that the payment of rent will be suspended during any period that the
premises cannot be occupied following damage by an insured risk
→ landlord can insure against the loss of rent
→ usually insurance is for a set risk period
typically for 3-5 years
therefore, landlord may attempt to limit rent suspensions accordingly
Termination → unless lease states otherwise, if the building is totally destroyed then frustration will only apply
in exceptional circumstances
→ lease will often give the right to terminate the lease if reinstatement is impossible
→ tenant should seek to ensure that he has this right too, if the premises have not been reinstated
by the end of the rent suspension period
1
