By Fenella Eddell
According to Price Waterhouse Cooper, the December storms are expected to result in £500 million – £700 million of insurance pay outs for the commercial property industry. This begs the question, how can prospective buyers of commercial property identify the potential flood risk before buying a property? There are a number of issues to consider.
The first is to ensure that the right property searches are carried out. The starting point is a desk-top environmental search, which will identify historical flooding that has taken place in the immediate area, the source of that flooding (e.g. river or sea) and the likelihood of further flooding taking place in the future, expressed as a one in however many years likelihood. However, this is only an overview as part of a broader environmental survey so, if a flooding risk is highlighted, it is sensible to commission a more detailed flood analysis survey. It is also a prompt to raise enquiries of the seller about the extent of historic flooding, if this has not already been covered by flood specific questions in the Commercial Property Standard Enquiries.
Another area to look at carefully is insurance and, specifically, the precise time when risk passes from the seller to the buyer. For example, had you been buying a commercial property in a flood risk area during December and, as is usual, risk in the property passed to you as buyer on exchange of contracts, you would not then have any remedy against the seller for the resulting decrease in value of the property arising from flood damage, nor would you have been able to pull out of the purchase. It is therefore essential to have adequate insurance in place from exchange of contracts in all cases when buying commercial property.
Similarly, when leasing a commercial property, a tenant will want to make sure that flooding is defined as a risk against which the landlord is required to insure. This will mean that the standard obligations that kick in on damage or destruction by an insured risk, such as rent suspension and an ability to terminate the lease if the damage is not remedied within a certain amount of time, will apply on damage or destruction by flooding.
The recent widespread damage caused by flooding is certainly a wake-up call to us all to pay particular attention to flood risk when buying or leasing commercial property.
Fenella Eddell is a solicitor in the property department at Barker Gotelee, Suffolk solicitors.