Lease - Level of detail to be covered

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    Lease - Level of detail to be covered

    Hello All !
    W.r.t a lease hold property and the obligations of the lessor in case of damage or destruction to the property by an insured risk (fire, earthquake etc.) , to what extent should the lease document cover the various scenarios around Lessors responsibility in rebuilding the property ?
    Should it be enough if a covenant on the lessor mentions that the lessor to rebuild the property with the money obtained from insurance or should the document also explicitly cover state other scenarios - e.g. where for some reason the lessor is not able to rebuild the property ?
    And if these negative scenarios are not explicitly mentioned in the lease then what should be done ?

    Can there be a case where the Lessor receives the money from the insurance and does not build the property ? What happens to the insurance money in that case...

    Any advise will be appreciated...

    #2
    As with many clauses, there are various possibilities with or without refinements. Usually you find either an unqualified obligation on the landlord to repair or rebuild in the case of damage by an insured risk or an obligation on the landlord to apply the insurance monies to repair or rebuild. The former encourages the landlord to make sure the insurance cover is adequate, but leaves the landlord exposed if the insurance monies are insufficient. The latter requires the lease to provide for who pays the shortfall and in what circumstances.

    It is not a bad idea to have a long stop provision in case it proves impossible to rebuild, for example because planning permission cannot be obtained. The clause will usually provide for the insurance monies to be divided between the landlord and tenant in the same proportion as their respective interests, any dispute to be referred to arbitration.

    The important thing is to ensure that the basic provisions are well-drafted before turning the attention to the refinements which cover remote possibilities. It is also important to ensure that the repair clauses, insurance clauses and insurance policy dovetail neatly.

    Are you drafting the lease or just considering possibilities before instructing a conveyancer?

    Comment


      #3
      Thanks for the response !
      I am evaluating a statement in the lease (for the purpose of buying a flat) and awaiting a decision of a solicitor around the same...
      As with other leases where there are covenants on the Lesse, Lessor and the management company.
      The lease I am evaluating explicitly says that in event the Block maintained property is impossible of repair rebuilding or reinstatement subject to the covenants of the Management company who maintains the building, then the money from the insurance will belong to the Lessor.

      However under the covenants of the Lessor, it also explicitly states that to cause all monies received by the virtue of insurance to be forthwith expended in reinstating and rebuilding the block maintained property and any deficiency in the money to rebuild and reinstate to come off Lessors own monies.

      Lease doesnt mention a case where the Lessor is not able to rebuild or reinstate (like for example the planning permission not received) and in that case what happens to the money he receives from insurance...
      Could this be a show stopper in proceeding further with the purchase or for a lender to lend money against mortgage ?

      Comment


        #4
        Originally posted by Sudy11 View Post
        The lease I am evaluating explicitly says that in event the Block maintained property is impossible of repair rebuilding or reinstatement subject to the covenants of the Management company who maintains the building, then the money from the insurance will belong to the Lessor.
        That has to be unacceptable to a tenant and any lender.

        Comment


          #5
          Is it because there is a contradiction ?
          Since under the Lessor’s agreement it does say that the lessor has to rebuild and reinstate the building forthwith the money received from the insurance.
          Should the landlord be asked to clarify these points before...

          Comment


            #6
            On the basis of the information supplied:

            Whether there is a contradiction depends on the wording. If the form is "the landlord will do x except in the case of y" then there is no contradiction.

            If there is a contradiction it should be resolved in favour of the tenant, but the outcome of litigation is never certain.

            If there is no contradiction the provision is unreasonable.The landlord gets all the insurance money and the tenant has no flat or compensation - even worse, if he has a mortgage he still owes the mortgage money.

            This is not a case where you can ask the landlord to say what he thinks the clause means. Whilst any assertion appearing to give comfort may bind the present landlord it will probably not bind any new landlord.

            Whether there is a contradiction or not, if this is an existing lease no one should buy the flat without a deed of variation. If it is a lease yet to be granted it should not be accepted unless amended.

            If the lease has already been granted the present tenant would be advised to take out back up insurance if he cannot secure a deed of variation.

            Comment


              #7
              Thanks for the reply.

              So the contradiction is there, or I would rather say an omission about the case where the Lessor has received the money from the insurance but he is not able to rebuild/reinstate the property for some reason not mentioned.
              So as per this lease tenants might not stand to get anything since the outcome of the litigation is never certain.
              Thanks again for all the help on the advise !

              Comment

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