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AUGUST2011

The riots that swept across London and other major cities a couple of weeks ago resulted in damage and destruction to numerous properties. This has resulted in an administrative and financial headache for many businesses and homeowners. There are various issues to be considered, as discussed below.

Will my insurance pay out?

Business and home insurance policies are likely to include the risks of “riot and civil commotion” and therefore the cost of repairing damage to the property itself should be covered. Some policies may, however, exclude the replacement of large glass shop windows, so it is worth checking the policy wording carefully.

Whether a particular policy will cover business interruption – something which is clearly important where businesses are unable to trade until their premises are reinstated – is not certain. Business interruption insurance, if it is applicable, will usually cover operating expenditure as well as profits. Therefore the detail of a policy needs to be checked, to ascertain whether such cover is available. In addition, the level of cover will need to be reviewed, to confirm that it is adequate to cover the losses that will actually be suffered.

Some policies may also cover businesses that were not actually damaged, but whose trade was affected by the aftermath of the riots. Businesses that have contents insurance should be able to claim for goods that were looted.

Owners of properties that are vacant will also need to review their insurance policies, as some insurance companies will require vacant properties to be equipped with additional security measures. Failure to comply with such requirements could result in a failure to pay out under a policy. In some instances, cover is restricted to fire, lightning, aircraft and explosion only.

In relation to home insurance policies, the cost of providing alternative accommodation may not necessarily be covered. It is not a standard element and therefore the particular wording of the policy will need to be checked.

What if I am a tenant?

Commercial property tenants should check the insurance provisions of their leases carefully in order to ascertain who is responsible for making the claim, any rights that the tenant may have with regard to rent/service charge suspension and whether the lease can be terminated. A copy of the buildings insurance policy should also be reviewed as soon as possible.

In the case of residential tenants, a well drafted tenancy agreement should provide for rent to be suspended (or refunded) where the property is uninhabitable following damage by an insured risk.

The Riot Damages Act 1886

This rather old piece of legislation provides help for those who have suffered loss in the form of damage to property or goods as a result of a riot. A claim can be made either by the person or organisation suffered the loss, or by the insurer. If valid insurance is in place, credit must be given for any insurance compensation received.

Usually, a claim has to be made within 14 days of the day on which loss or damage occurred. However, the Government has announced that this period has been extended to 42 days.

What else is being done to help?

Additional measures have been announced by the Government, including:

• Planning authorities are being asked to prioritise applications that relate to properties affected by the riots;
• A possible consultation on whether security shutters and other security measures should become  “permitted development” under the planning legislation;
• A £20 million “support scheme” to compensate local authorities that allow businesses affected by the riots relief from business rates; and

The Valuation Office Agency and local authorities have been asked to remove properties that were seriously damaged from their respective valuation lists. This would mean that such properties would no longer be liable for business rates/council tax.

The British Bankers Association has also announced that many banks will provide assistance through the following means:

• Credit limits may be increased;
• Overdrafts may be extended;
• Mortgage repayment holidays may be granted; and
• Overdraft fees may be waived.

It pays to prepare for the worst

It is all too easy to ignore the detail of insurance policies until the unthinkable happens. However, by that point it may be too late. Investors, businesses and homeowners would be well advised to check the small print of their policies and leases in light of recent events

Rosie Davies
Solicitor

If you would like any further information and about the issues raised in this article please contact Rosie Davies (rdavies@gdlaw.co.uk), or any other member of Goodman Derrick LLP’s property team on 0207 404 0606.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice.