Why Insurance is Crucial for the UK Commercial Property Sector

Fundamentally, insurance provides financial protection against unforeseen events, ensuring that both landlords and tenants can manage risks associated with property ownership and occupation. Recent UK court cases have highlighted the complexities and critical importance of insurance in various scenarios, including landlord obligations, occupier liabilities, and issues arising from defective legal titles. We will quickly look at each of these areas.

Landlords are typically responsible for insuring the structural integrity of their properties. However, the extent of this obligation can vary based on the terms of the lease in question. In Prezzo Ltd v High Point Estates Ltd [2018], a fire damaged a building where Prezzo occupied the ground floor and basement. The landlord's insurer covered the damage but sought to recover costs from Prezzo. The court found that the landlord was only obliged to insure the tenant's premises, not the entire building, emphasising the necessity for tenants to understand the scope of their landlord's insurance responsibilities. It is so important for commercial clients (either as a landlord or tenant) to understand their commercial leases inside and out. So often the extent of one’s obligations is only truly appreciated when something goes wrong and by then it could be well too late.

Occupiers of commercial properties must also ensure the safety of visitors to prevent injuries and potential legal claims. In Drysdale v Hedges [2012] EWHC B20 (QB), the High Court ruled that a landlord could not be held liable under the Occupiers' Liability Act 1957 for injuries sustained by a tenant. This case underscores the importance for tenants to have adequate public liability insurance to cover such risks. Again, understanding what you are responsible for is of paramount importance.

What about defects in the legal title itself? Well, defective title insurance protects property owners against losses arising from issues like restrictive covenants or rights of way that could have a significant impact upon the use of the property. It is worth remembering however that defective title insurance does not provide the thing that you are insuring against, i.e. it will not provide a right of way when there is none, but it will offer financial protection if somebody seeks to enforce the lack of a legal right of way over the land in question. If you lost access to the main entrance of a factory for instance the result could be catastrophic, and insurance will give you peace of mind.

It is essential that if you have a commercial property portfolio or you are in the process of expanding one that you thoroughly review the lease terms of those properties and, if it is not to late to do so, consider how insurance may mitigate potential financial pitfalls.  If you have concerns then you should contact Forbes to discuss any issues as soon as possible.