13-11-2019

Making sure your business is protected in the event of a flood

The recent flooding across the region has caused devastation and widespread disruption for business and residential communities alike, and whilst heart-warming to see how people have rallied in support of each other, it has no doubt been a very difficult time for those affected.

In many commercial cases, companies have been forced to cease trading temporarily – either due to access issues, or in order to manage the clean-up operation – causing an inevitable impact on turnover and trading viability.

This could leave many business owners concerned about the future.

Firstly, take some time to review all of your insurance documentation. In order to counter the negative impact of major, unpredictable events such as flooding many business owners take out business interruption insurance which is separate to your commercial property lease.

This is a specific policy that insures you against any loss of profit during a time you are unable to continue trading, and it will also insure you for increasing operating costs such as the replacement of your furniture, equipment and any other soiled fittings and contents damaged at the property.

If you are eligible to claim, you will be able to get your business back on track quickly and efficiently without concerns of how you to finance the work.

Alongside this, most commercial leases contain a rent suspension clause stating that the rent (or a proportionate part of it according to the nature of damage or the level of intrusion) is suspended if the property cannot be accessed or used. This is important and can help make sure your landlord works with you quickly to ensure the property is fit for purpose again as soon as possible.

For tenants who pay rent quarterly, any rent paid in advance at suspension should be returned (although this will depend on the manner in which your lease is drafted). Imagine your annual rent was £15,000, you had paid £3,750 on the 29 September quarter day and the property flooded two days later. The upfront payment could be used towards remediating loss and restoring trade, which could provide a much needed boost during this difficult time, rather than languishing in the landlord's bank account. Where the landlord does not return any rent paid in advance, the benefit of the rent suspension is rendered rather pointless.

It is also worth noting that responsibility for restoring damage or destruction to a commercial property is often linked to whether the damage or destruction is caused by a risk against which the landlord was obligated to insure. During lease negotiations, it is wise to ensure that the drafting provides for a reinstatement mechanism when damage or destruction is caused by a risk that is not an insured risk.

A landlord will likely be obliged under the terms of the lease to seek to repair the flood damage at the property, but that obligation will rarely, if ever, extend to the tenant's own fittings and contents or additions or improvements to the property.

It is therefore important that you as a business owner again review your insurance policies carefully to determine which of these items (in addition to business interruption outlined) are covered so that you claim appropriately. 

For future planning, now that flooding at your current location has been identified as a risk it may be worth also developing a business recovery plan if you can no longer work from a potential site to ensure you can continue to trade.

This may see you move operations to an alternative site which you already own, see you take transactions over the phone or online instead of at the property, it may also see you employ staff remotely.

A commercial law expert could help provide advice on the best way to structure your business to allow this to happen moving forward, and to ensure you have the best lease agreements in place with your commercial landlord – helping to minimise any disruption caused by a natural disaster on you, your business, your employees and your customers.

If you have any concerns about the flooding of your business or want to make sure you have the right insurance and policies in place our expert team can help, contact our team today on 0330 017 6309.