Whether lawyer or surveyor, we professional advisers to landlords and tenants have a dual-role in the field of business tenancies: to help clients to abide by and comply with the law, and where the client has not sought our advice beforehand to find legitimate ways to wriggle out of liabilities and responsibilities.
Knowing your way around the system so well that it’s possible to find ‘windows’ or ‘openings’ is how a friend answered my question about why hackers are able to break into computer systems and wreak havoc. Whether you’re a landlord or tenant, it’s not much comfort to find yourself on the receiving end of an opening, or loophole, but that’s not the point. Loopholes are ambiguities or inadequacies in the law that emerge either through oversights or inexperience, or a failure to block every eventuality deliberately to provide an escape route where it would be unfair to plug them. A common loophole is the difference between express and implied covenants.
The wording and phrasing of a lease has to be drafted carefully because of the implications for either one or both parties. Unfortunately for landlords and tenants alike, and even though the same information is available, not all advisers are created equal. For example, in my experience, many lawyers haven’t a clue about the practical consequences at rent review of the wording of the documents they are entrusted to draft, because their idea of drafting is simply to use a precedent as if one size is bound to fit all.
Since a business tenancy is a commercial contract, which means the parties are deemed to know what they are doing, it may not be enough to rely on any overriding legislation (if any) or manage by implication. Unlike the relationship of landlord and tenant where problems arising can be resolved between themselves, the difference with insurance is that a third party, namely the insurer, is involved. Insurers, also businesses, have a vested interest in maximising their own profit. The small print in the policy document, which is generally only scrutinised after the event, might enable the insurer to wriggle out of its responsibilities to the policyholder.
Where the landlord insures, pays the premium for the policy before recovering the premium from the tenant, the landlord’s arrangement with the insurer can affect the landlord’s relationship with the tenant. To be on the safe side, compliance with the requirements of the lease is crucial. A case in point is Green v 180 Archway Road Management Co Ltd  where the landlord had placed insurance in the name of the landlord with no mention of the tenant’s name. The tenant refused to pay. The landlord’s reliance on a general interest clause was not sufficient; the court held that the tenant, Ms Green, was only liable to pay for those years when her interest had been directly named on the insurance policy.
The same principle applies to recovery of sums expended. In Quirkco Investments Ltd v Aspray Transport Ltd , a tenant’s break clause was conditional upon no arrears of rent and no other outstanding breaches of covenant. The insurance premium covered the period after the tenant would have vacated so the tenant refused to pay. At the break date, the landlord had not actually paid the premium, so was not in breach at expiry of the break notice.
Changes in policy terms either made by the landlord or the insurer should be disclosed to the tenant. Unless the lease contains an express provision, the duty to disclose is not implied. For example, where a landlord informed the tenant that the landlord’s insurance cover included malicious damage but subsequently failed to inform the tenant that the cover had been withdrawn, the tenant was awarded damages in tort: Fleetwood v Engineering Construction Industry Training Board 
Landlords must pass on the recommendations of the insurers to tenants: in Lambert v Keymood Ltd , the landlord was held to have contributed to the tenant’s negligence by failing to pass on the insurers’ recommendations and the landlord was unable to recover the full cost of the damage caused.
The landlord has a duty to disclose to its insurers any material consideration which may affect the insurers’ judgment. In Aldridge Estates Investment Co Ltd v McCarthy , the insurer was able to avoid liability because the landlord had not disclosed the presence of squatters and a high level of vacant units which were both material to the risk of damage to the premises.
The tenant is under a duty to disclose to the landlord any material changes that would affect the insurance. In Ansari v New India Assurance Ltd , the insurer avoided a claim from the landlord following a fire at the premises where the landlord had originally stated on the proposal form that the premises were protected by an automatic sprinkler installation belonging to the tenant. The tenant subsequently turned off the sprinkler system. The change was held to be material to the facts stated on the proposal form which amounted to a material alteration in the nature of the policy’s subject matter.
The landlord is not normally obliged to insure tenant fixtures & fittings unless they become part of the landlord’s property. It is not always clear whether a fixture or fitting has become part of the property and should be insured by the landlord. Obtaining information from the tenant about whether it has put in any fixtures & fittings may not be straightforward: where the lease does not require the landlord’s consent for non-structural alterations, the tenant’s definition of ‘non-structural’ may differ. For example, an air conditioning unit installed by the tenant but which is not free-standing is likely to become part of the landlord’s property. The rule-of-thumb is to imagine turning the property upside down: anything that falls out belongs to the tenant, everything else to the landlord.
The meaning of “reinstatement” was considered in Vural Ltd v Security Archives Ltd (1990) where the tenant succeeded in wanting a wood block parquet floor, the landlord wanting linoleum. Nowadays, leases may allow some flexibility, the rebuilt premises not needing to be identical, provided the reinstated premises provide accommodation of at least equivalent size, quality and convenience as the destroyed premises.
In relation to insurance, the doctrine of subrogation entitles an insurer who pays the claim of its insured to sue the wrongdoer in the name of the insured. For example, a tenant who causes damage to the building is at risk of being sued by the landlord’s insurer; however, the risk is avoided by joint insurance.
Over-insurance is to be of the safe side, regardless of any higher premium. Under-insurance could result in insufficient funds for reinstatement and, generally, application of average clauses in policies, whereby the insurer would only pay a proportion of the loss. The proportion is the ratio which the level of cover at the time of the loss bears to the full value of the property.
Part I of this article and this concluding part is intended to provide a taste of insurance. Where landlords cannot recover the premium from the tenant because the lease does not provide for that, so are wanting to save money by using the most competitive insurer, a low premium might be excluding more valuable terms and conditions and cause the landlord to end up worse off in the event of a claim. Just because insurance is based on honesty doesn’t mean that landlords honestly know what they’re letting themselves in for!