Landlord's Covenant to Insure and Reinstatement Value
FRI lease: landlord covenants to insure the building to its full reinstatement value against the insured risks defined in the lease schedule. Insured risks typically: fire; lightning; explosion; earthquake; storm; flood; subsidence; burst pipes; malicious damage; aircraft; riot. Insured sum: full cost of demolition, clearance, and rebuild to same specification � NOT market value; include professional fees, planning costs, applicable VAT. Underinsurance risk: if insured sum < full reinstatement cost, the insurer can invoke the average clause and pay only a proportionate share of any claim. Reinstatement Cost Assessment (RCA): RICS-qualified building surveyor assessment every 3 years to keep insured sum accurate. Landlord's default: tenant may insure and deduct premium from rent (check lease drafting for this right); landlord also liable in damages.
Uninsured Risks, Rent Cesser and Obligation to Reinstate
Uninsured risks: risks not listed in the schedule or excluded by the insurer; terrorism commonly excluded from standard policies (Pool Re cover available); flood in high-risk areas (commercial property excluded from Flood Re). Where premises damaged by uninsured risk: landlord typically no obligation to reinstate; rent continues to run (no automatic rent cesser); tenant should negotiate uninsured risk break clause allowing either party to determine lease after specified period (typically 2�3 years). Rent cesser on insured risk damage: rent (and usually service charge) suspended while premises cannot be used by reason of insured risk damage; duration capped at reinstatement period in policy (typically 2�3 years). Landlord's obligation to reinstate: must use insurance proceeds to rebuild within a reasonable time; if insurer refuses to pay (e.g., policy condition breach), landlord may still be obliged to rebuild at own cost � comply with all policy conditions and report losses promptly.