Insurance (Structure and content of a lease)- FS Flashcards
(12 cards)
Who is generally responsible for insuring a commercial property when the leaseholder leases the whole property?
Either the leaseholder insures the property themselves, or the freeholder (landlord) insures it and passes the cost to the leaseholder.
Who must insure the building when a leaseholder leases part of a property?
The freeholder must insure the entire building, as the leaseholder cannot insure parts they do not control, and then recover the cost proportionately.
How can a landlord ensure they can recover the insurance premium from tenants?
By including lease provisions allowing the cost to be recovered via the service charge or through a specific payment called insurance rent.
What is the purpose of a landlord’s covenant to insure the property in a lease?
It is a promise to maintain adequate insurance covering specified insured risks to ensure the property can be reinstated if damaged.
What are typical examples of insured risks listed in commercial leases?
Fire, storm, flood, earthquakes, burst pipes, and any other risks the landlord chooses to insure against.
What is insurance rent in the context of commercial leasing?
A contractually reserved amount the tenant pays to contribute to the insurance premium paid by the landlord.
What obligation does a landlord have regarding insurance proceeds after property damage?
The landlord must use the proceeds to reinstate the property, i.e., restore it to its pre-damage condition, not use the funds for other purposes.
What is the principle of rent suspension in a commercial lease?
If the property becomes unusable due to insured damage, the tenant is not required to pay rent until the property is reinstated or condemned
What is the rationale behind including a rent suspension clause in a lease?
To protect tenants from paying rent when they cannot occupy or use the premises due to events like flood or fire.
Why do landlords generally accept rent suspension clauses?
Because they can usually recover the lost rental income through their insurance policy, making the provision commercially acceptable.
What lease mechanism allows termination following destruction of the property by insured risks?
A clause permitting either party to serve notice to terminate the lease, ending future obligations, while allowing retention of any accrued insurance proceeds.
Who benefits most from a well-drafted rent suspension clause in the lease?
The tenant, as it ensures they are not financially liable for rent when the premises are unusable due to insured events.
