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Damage to premises caused by insured and uninsured risks

Damage to and Destruction of Commercial Premises

Damage to premises during the term of a lease

Landlords usually insure the premises against a list of “insured risks”, with tenants reimbursing the premium. If the premises are damaged or destroyed, it will be necessary to consider whether the damage was caused by an insured risk or a risk that was uninsured.

Risks may be uninsured because the landlord has not included them in the list of insured risks (terrorism is a common exclusion) or because cover has become unavailable on reasonable terms.

Damage caused by an insured risk

If the damage or destruction is cause by an insured risk, the usual position is that the landlord will make an insurance claim and will repair the damage. The tenant will benefit from a rent suspension while the premises are unfit for use. There may be rights for the landlord and/or tenant to terminate the lease if reinstatement is not viable or not wanted.

Uninsured risks

If the damage is caused by an uninsured risk the position is more complicated. If the lease makes no express provision for such damage, the tenant will be required to repair the damage (under its repairing covenant) and there will be no rent suspension.

As this is increasingly felt to place excessive risk on the tenant, some modern leases contain “uninsured risks” provisions similar to those for damage caused by insured risks. They will usually provide for the landlord to repair the damage at its own cost. The landlord may have the option to terminate the lease instead of reinstating the premises.

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