In this blog, Keith Dickinson managing director of Shire Insurance, highlights the important areas you should be considering if you are a tenant, to ensure that you are in control of your insurance cover, how to avoid conflict of interest and how to protect yourself.
“With over half the veterinary practices in the UK now part of a corporate veterinary group, a significant number will be tenants. I would advise anyone responsible for their practice’s insurances to consider the following:
- Managing any conflict of interest
- Using a Commercial Legal Expenses extension as a buffer against noninsurance issues
- Be in ‘control’ of the policy
- Protect yourself, first
- Make sure any loss of income following a claim protects YOUR rent
- Take into account the saleability of the property
How to avoid a conflict of interest
Establish an early formal contractual relationship from the outset (remember that the venture capitalist owner is more than likely to be replaced by another VC in due course) about the insurance cover you require.
You will almost certainly have a fully repairing and insuring lease for which the tenant is legally obliged to pay. The widest scope and range of insurance cover is therefore in your interest. The cheapness of the premium is more likely to be in the interest of the tenant.
The building repairs in the event of an insurance claim have to be judiciously reinstated to the landlords preferred specification not to that of the tenant. These may be two very different things.
Make sure you have property owners liability (POL) cover in your own name and do not rely on the tenants POL to indemnify any visitors to the premises who are there to see you as opposed to the tenant.
Commercial Legal Expenses
Your policy will normally offer the opportunity to extend cover to include commercial legal expenses. This is inexpensive and invaluable and will make clear the legal responsibility on contractual disputes between landlord and tenant. Items include such things as:
• dilapidation disputes
• statutory licence appeals (private rights)
• removal of squatters
• boundary disputes
• tax protection
It is most likely that your tenant will prefer that you have this cover in place.
Be in ‘control’ of the policy
Ensure that you use your own experienced insurance broker to set up the landlords insurance on your behalf rather than rely on the block policy often offered (as a cheap option) by the tenant. This will offer protection to ensure that (1) sums insured are adequate (2) premiums are paid and up to date (3) changes are attended to in a timely manner.
If the property becomes unoccupied, your insurer may no longer be prepared to continue with cover. The skill and knowledge of your insurance broker will come in to play in determining where the cover is placed. That has to be the decision of the landlord.
If you have a SIPP ensure that the policy is reasonable to show good faith with the tenant. Avoid the unnecessary annual ‘review’ which SIPP providers charge for.
Protect yourself, first.
Ensure that the longest indemnity period is used for business interruption claims. Also, it is better to have your own loss assessor in the event of a claim rather than rely on that of a tenant.
The tenant will often contractually be obliged to pay for regular valuations. In order to protect against under insurance you may care to use this option. There is a market out there for veterinary freeholds. Top prices are being paid for the strongest leases and widest insurance cover.
Make sure any loss of income following a claim protects YOUR rent
Your tenant will insure against loss of rent but that does not guarantee it will be paid to you promptly or even at all.
You need to insure the rental income yourself preferably over a three-year indemnity period and to ensure that this comes directly to you.
Take into account the saleability of the premises
Although dilapidations are generally covered by the repairing clause, the long-term condition of your property and its value may be affected if the premises is shutdown as being unprofitable.
A long-term lease may prevent repossession for onward sale.
So to conclude, avoid conflict of interest by taking control of the buildings insurance and do not let the tenant arrange cover on your behalf.
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