Parts of Oxford Street were brought to a standstill on 19
January when a Thames Water burst water main caused havoc, a number
of shops had to shut and stock was damaged. Further, the cost of
obtaining insurance cover for natural flooding is becoming more
difficult and expensive and looks set to get worse.
This article looks at the issues landlords face in dealing with
flooding, either by burst water main or natural causes (river,
coastal, ground water and surface water) and how these can be dealt
with.
Burst water main
The recent burst water main on London's Oxford Street caused
huge difficulties to the affected retailers in already difficult
trading conditions. Water companies are responsible for the supply
of water up to and including the stopcock of properties. Therefore,
if there is a burst water main in the road, as in this instance, it
will usually be the water company's responsibility and they will be
liable for the damage caused. Shortly after the burst water main on
Oxford Street, Thames Water released a statement confirming that
they have put the affected retailers in touch with their loss
adjustors.
Tenants will firstly be looking to recover the cost of the
physical damage, being the cost of spoiled stock and of repairing
the damaged premises. Fortunately in the Oxford Street example most
of the damage was at basement level, so most of the shops were able
to continue trading.
We would advise landlords that if there is a burst water main that
causes flooding to one of their properties to notify the water
company immediately, so that they can minimise the damage and deal
with any potential claim for damage to the premises.
Natural causes
Unfortunately, where flooding is caused by natural causes, for
example if there is extremely heavy rainfall or a flooding river,
there is nobody to blame and therefore nobody to claim against.
Flooding is the biggest natural disaster that occurs in the
United Kingdom and obviously some areas are at particular risk. The
scenes from Cockermouth in December 2009, where water levels got up
to 8.2 metres, show the extensive damage that flooding can
do.
Landlords should ensure that flood damage is included in their
buildings insurance cover. If their property is damaged by
flooding, they will need to claim for the cost of repairing and
rebuilding it. Further, most leases will include a suspension of
rent and possibly service charge for tenants if there has been
damage by flooding. Landlords should ensure that their insurance
covers loss of rent and that the cover matches the period of rent
suspension in the lease.
Flood damage insurance may not always be readily available or may
be too expensive, particularly in areas with a higher risk of
flooding. Landlord's can check if they are in a flood risk area by
undertaking a cheap and quick 'flood risk' search. If cover is
unavailable, landlords should check their leases to determine
whether they must always provide cover for flooding, or whether
there is a "get out" if it is not available or too expensive. They
should also check the repair and insurance covenants to determine
whether it is the landlord or tenant who is responsible for
repairing the damage.
When entering into new leases in high risk areas, landlords should
consider how the risk of flooding is to be shared between the
landlord and tenant. If the landlord is not required to have flood
damage cover, prospective tenants may well want a carve out in
their repairing covenant, so that they do not have to repair the
premises if there is flood damage, a rent suspension and a break
clause if the damage is not repaired within a set time
period.
People in areas with a high risk of flooding should take
particular caution, as a Statement of Principles for flood
insurance between the insurance industry and the Government comes
to an end in June 2013. This agreement prescribes that insurers
must always include flood cover as standard for domestic properties
and small businesses in low risk areas built before 1999 and allow
such properties in higher risk areas who already have flood cover
to automatically renew this with the same insurer.
The Association of British Insurers has recently confirmed that
they will not be renewing the Statement of Principles. There is
considerable political background to this decision, but the main
reasons appear to be that they do not feel that the Government has
done enough to improve flood defences and that having to provide or
renew cover is driving insurance premiums upwards. The Statement of
Principles comes to an end in June 2013 and may move to a more
'risk based' approach.
Conclusion
If damage is caused by a burst water main, the landlord should
contact the relevant water company as soon as possible. For
flooding arising from natural causes, it is becoming more and more
difficult and expensive to obtain insurance cover for flooding. In
areas at particularly high risk, landlords should ensure that they
will be able to obtain flood cover and should check the terms of
their leases if not.
This article by Robert Marchbank first appeared in the
February 2012 edition of Property Investor News