The current market position is settled that a landlord will remedy uninsured risks. But what is an 'uninsured risk' and what are the key landlord considerations?

Insured risks

The lease list of prescribed insured risks is fairly standard, and may include market requirements (e.g. recent focus on terrorism). The obligation to insure against these risks normally includes a caveat that insurance is only required when generally available on normal commercial terms in the UK insurance market.

What happens when the caveat applies and an insured risk hasn't been insured by the landlord? Assuming the insurance wasn't available on normal commercial terms (and there may be a fight about that) the lease insurance provisions would not apply and the tenant would be obliged by the lease to repair the damage.

Depending on the quantum of damage, there is therefore the possibility of a dispute over whether or not (i) the caveat applies and/or (ii) the landlord did enough to find insurance for the risk in question. Landlords should therefore consider going to the wider market if their current insurance does not cover all of the prescribed insured risks.

Uninsured risks

Any insured risk for which cover is not currently available is generically called an 'uninsured risk'. Traditionally, there was no obligation on the landlord to make good uninsured risk damage. Tenants are less willing to accept that. Landlords are also focussing on this because of the potential valuation impact if there is damage to their property and uncertainty as to who is to make good that damage; and the potential cost should that obligation fall on them. It's therefore in the interest of both parties to be clear (a) what constitutes an 'uninsured risk', and (b) who makes good uninsured risk damage.

Key lease considerations include:

Not open ended: any risk that isn't insured should not be considered an uninsured risk.

Tenant breach: the tenant shouldn't be able to take advantage of uninsured risk if its own breach has created the damage.

Landlord option to reinstate: the landlord should only be responsible for remedying uninsured risk damage if it elects to do so. That right to elect is important for the landlord, as it allows flexibility.

Landlord elects: if the landlord elects to reinstate the insured risk provisions usually apply. That includes rent and service charge abatement, an obligation on the landlord to remedy, and a mutual termination right if that does not happen within a certain period. A concern for the landlord is that because the risk is uninsured and therefore not covered by the landlord's insurance, there may be no rent and service charge insurance pay out to cover the abatement period if it's tied to the insured risk. There may also be no insurance proceeds to fund the reinstatement works. That would all be a landlord cost. The right to elect (rather than an absolute obligation) is a key landlord protection.

Landlord does not elect: If the landlord does not elect to reinstate, then unless a tenant reinstatement right exists, the usual consequence is that either can terminate the lease. That mutual termination right is important. Exercising it will depend on various factors such as the remaining term of the lease, and the nature of the uninsured risk damage. It may be more cost effective for the landlord to terminate the lease, regain control of the asset and redevelop.


Elizabeth Ward

Legal Director

David Bales

Senior Associate