Insurance obligations in an agreement for lease

The following Property practice note provides comprehensive and up to date legal information covering:

  • Insurance obligations in an agreement for lease
  • Who should insure?
  • Who should pay for the insurance?
  • Insurance of the tenant's works
  • Impact of damage on any rent free period
  • Consistency with other insurance provisions

Insurance obligations in an agreement for lease

If there is no express provision on insurance in the agreement for lease then, under open contract:

  1. neither party is obliged to insure the property, and

  2. risk passes to the tenant on exchange of the agreement for lease

The position under both the Standard Commercial Property Conditions (2nd and 3rd Editions) and the Standard Conditions of Sale (5th Edition) provide that, unless specified in the contract, the seller/landlord is not required to insure property and therefore risk passes to the buyer/tenant on completion.

In a simple agreement for lease (where the landlord is not carrying out any works) the tenant is obliged to take the lease even if the property is destroyed between exchange and completion. This outcome will not suit the tenant and (if it refuses to complete the lease, and an order for specific performance is refused) may well not suit the landlord either, as the tenant may not be able to meet any consequent award for damages for breach.

In an agreement conditional upon the landlord attaining practical completion of various works a tenant may take a bold view that it is not at risk if the agreement is silent on insurance. It will argue that, should damage occur to the landlord’s works before they reach practical completion, the landlord has to repair the damage and complete

Related documents:

Popular documents