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retail districts - the frontline in riots

11 August 2011

What should retailers think about and what action should they take if they have suffered damage as a result of a riot?

What is the insurance position under your lease?

Many modern leases include riot as an insured risk and most standard property insurance policies do cover riot damage. Some leases may also specifically cover looting and malicious damage. Typically, the landlord will effect the insurance and the tenant will repay the premium to the landlord via an insurance rent.

If your retail property has suffered any damage as a result of the riot you should notify your insurer and landlord immediately.

What is a riot and are you covered?

The legal definition of a riot is where 12 or more persons who are present together use, or threaten, unlawful violence for a common purpose, where their conduct would cause a person of “reasonable firmness” present at the scene to fear for his personal safety (Section 1 Public Order Act 1986).

It is important to note that a riot can occur on private property as well as in public and no third party of reasonable firmness (or otherwise) actually need be present.

Some insurance policies for specific causes of loss only, for example fire, may exclude liability where the insured risk is itself caused by riot or civil commotion or where a claim arises from the failure of a fire alarm system to perform its intended function. Insurance clauses in leases and policy wording should be considered carefully.

Some leases may additionally, or alternatively, refer to a civil commotion. Whilst perhaps sounding less serious than a riot, a civil commotion has been described as an ‘insurrection of the people for general purposes’ and can actually be regarded as stage intermediate between riot and civil war.

Police Authority compensation

The police authority have an obligation under the Riot (Damages) Act 1886 to compensate where a shop or building has been damaged or destroyed, or the property in it has been damaged, stolen or destroyed as a result of a riot. This extends to damage to manufacturing machinery, but does not extend to personal injury, loss of business or damage to property outside of a building (for example delivery lorries).

It is important to note that in fixing the amount of such compensation the conduct of the retailer which has suffered damage can be taken into account in respect of the precautions taken.

Where an insurer has paid out under a policy it is likely to seek to recoup such money from the police authority by using subrogation to ‘step into the shoes’ of the insured in respect of the compensation available. It is therefore important to contact your insurer promptly as such a claim must be made in writing within 14 days and your insurer may require supporting evidence to be provided within a very tight timescale.

Other effects: shortened trading hours and missed deliveries

Where retailers close early to avoid further damage such preventative measures will also result in loss. Stores may struggle to receive regular deliveries due to road closures. It may be less clear whether retailers can claim under their policies in these circumstances and the exact policy wording and exclusions should be considered.

Some retail leases (especially those in shopping centres) contain ‘keep open’ provisions which oblige a tenant to remain open for trade during specified opening hours. A breach of this obligation could give rise to a damages claim against the tenant but in practice it may be difficult for a landlord to demonstrate any loss in these circumstances. Such clauses may specifically provide for what happens in unforeseen consequences which are beyond a tenant’s control, and again these should be read carefully to understand what is required.

Uninsured risks

Going forward, if exclusions or limitations in respect of riot and malicious damage increase then very careful thought will need to be given to the position in respect of uninsured risks under a lease, otherwise retailers could find they lose out if there is an insurance gap.

Obligation to repair and reinstate

Your lease will set out what should happen in respect of reinstatement in the event of damage and it will also deal with rent suspension and potentially even termination of the lease where more serious damage or destruction has occurred.

Many leases separate out plate glass insurance from the main buildings insurance to be obtained by the landlord. The tenant retailer is then normally responsible for effecting such insurance (or self-insuring) and repairing the shopfront glass in the event of damage.

Protective alterations

Anti-theft measures such as roller shutters and ram raid bollards are not suitable in all instances and may in fact be prohibited under the lease or as a result of listed building status. The consent of the landlord is typically required to make alterations to the external shopfront or structure and the terms of the lease will set out what consent is required in respect of any alterations which retailers may now be considering.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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