No is the obvious answer, but it is worth looking at the obligations of both parties under the R.E.I.V. and Law Institute Leases and what they mean in practice.
With the R.E.I.V. 2016 Lease, the owner is allowed to recover insurances premiums under clause 2 (h) of the lease which is fairly encompassing. The landlord can pretty much insure whatever they like at whatever sum they see fit. The landlord is prevented from recovering insurance charges if the Retail Leases Act 2003 applies generally if it is not disclosed in a disclosure statement, covers part of a premises not used by a tenant, the calculation is not on a percentage of floor area and the like. The landlord also has an obligation to provide insurance details to a tenant under clause 21 if requested to do so. There is no requirement on the landlord to actually insure the building so after production of documents, the landlord could merely cancel the policy. This is unchanged from the 2003 version of the lease.
The tenant also has obligations to insure under clause 4 covering public risk, additional premiums by way of the tenant’s occupancy, claims excess payment and tenants fixtures and fittings. Whilst there is an obligation on a tenant to replace glass in clause 5.5 (f) interestingly, there is no obligation on the tenant to insure glass. The tenant is also not required to insure in the joint name with the landlord or note the landlord as an interested party.
With the Law Institute of Victoria 2014 Lease, the owner can recover insurance premiums under clause 1.1(d) and the type of cover is strictly defined and not as broad as the R.E.IV. lease. Public risk premiums are for $10 million as a default so ensure that schedule item 12 is for example $20 million. The same applies to Loss of Rent cover listed in schedule item 13. If you require a loss of rent period of say 18 – 24 months you need to make the appropriate insertion in the schedule as the lease has a default period of 12 months only. The owner has a further obligation to ensure that the premises are insured under clause 6.2 during the term of the lease unlike the R.E.I.V. lease. The tenant also has obligations under clause 2.1.6 to pay any premium increase due to the basis of occupancy and to insure for public risk for an amount listed in the schedule (the same basis as the landlord noted above) but for not less than $10 million in clause 2.3. The landlord in this case must be noted on the tenant’s policy. There is no requirement for the tenant to insure their fixtures fittings or stock. Clause 3.2.3 requires the tenant to replace any broken glass but there is no requirement for the tenant to insure glass. The tenant is also required to pay any claims excess under 1.1(d).
Some of the tenancy problems which are encountered with insurance (a topic in itself) include:
- Under or over insurance. With under insurance the insurer applies averaging to the claim so the landlord will be well out of pocket. With over insurance, the tenant will pay excessive premiums. The lease has no mechanism to rectify either of the above situations although a retail lease may lead to a mediation to resolve the matter. Generally, if the tenant receives an invoice from the landlord which it considers to be excessive, quotes are sought from competing brokers and compared upon which the parties negotiate a settlement. Advice should be sought as policies can be a premium type or bare bones form of cover only and not always like for like. The sums insured are normally arrived at by a valuation if in dispute. You cannot take an educated guess when assessing the quantum of cover.
- Glass cover is often a basis of dispute wherein the tenant who is paying the landlord’s insurance premium has an expectation that if the glass in the shopfront is damaged, that the landlord has glass cover. Landlords should always have cover to avoid this problem.
- The noting of a landlord on the tenants policy is also problematic. Will the insurer actually cover the landlord in the event of a claim? The landlord is a third party, has not completed a proposal with the underwriter and may not be an insurable risk let alone that they have seen or read a copy of the policy noting the exclusions of cover.
- Landlords who also demand copies of tenants insurances as a basis to sleep well at night are unrealistic. The landlord cannot contact the tenant’s insurer to see if a policy is up to date during the period of cover due to privacy legislation and there is nothing to stop the tenant cancelling the policy the day after production to the landlord.
- Some landlords allow the tenant to take out the cover thinking they are doing the tenant a favour or if it is a large corporation, that the premium will be vastly cheaper. In the event of a substantial or total loss if proper cover is not in place the landlord may be bankrupted or face an appearance in the coroner’s court in several years time. Why would you risk that?
- Something to consider, If you have just leased to a new tenant in a property that was hard to lease, the tenant is under resourced, a first timer, an extensive fit out is involved or the rent is high, consider loss of rent cover (not loss of income in the event of say a fire) for 12 or 18 months if the tenant gets in financial difficulty. If the tenant survives the first year or so of a new lease their chances of success are much higher and you may not renew the cover. Either way, If you have a large mortgage or are really going to rely on the income then without insurance you may put yourself in jeopardy. The premium is most likely recoverable anyway.
The golden rule is that each party must maintain and control their own insurance cover.
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