11-Aug-2011 10:02

Have Riots Affected your Business?

With reference to recent 'Riots'...

Are you interested in learning about Legal Issues that may affect your business?

Events in London 6 - 9 August 2011 - a guide to the legal issues that may affect your business

1. Issues for all property owners and occupiers:

Will the insurance policy cover damage by recent events?

Most UK commercial buildings insurance policies cover a standard set of risks, including fire, explosion, malicious damage, riot and civil commotion and so, subject to any excesses and exclusions, the cost of repairing physical damage will be recoverable under the insurance.

The insurance policy must be inspected first to check that it does cover the usual property risks and, second, to ensure that it is not subject to any exclusions that would remove the cover.

Policies normally have an exclusion in respect of terrorism but it seems unlikely that recent events fall under that heading as defined in the Terrorism Act 2000. To be terrorism the criminal acts must be intended to influence the government or intended to put any part of the public in fear (the fact that this was a major side-effect of the disturbances is probably not enough).

Some policies may have a specific exclusion of damage caused by a riot. If this is the case there may be some debate as to whether what happened at a particular location was a riot or not. Businesses should gather as much information as soon as possible about what happened, e.g. cctv camera footage and statements from employees and passers-by.

A common exclusion from buildings insurance policies is damage to plate-glass. This should be checked for. Tenants often take out their own insurance against this type of risk, but many decide to "self-insure", i.e. to pay the cost out of their own funds as and when it arises.
Who will pursue the buildings insurance claim?

An insurance policy may be for the benefit of more than one person, for instance the tenant or a lender with a mortgage over the premises may have an interest. There can be "joint insurance", "composite insurance" or a party can have its interest "noted" on the policy. Each of these expressions has a technical legal meaning which will have an impact on how the claim can be pursued. A copy of DLA Piper's note on this issue is attached.

If they suspect that an insured does not intend to use the proceeds of a claim for fire damage actually to repair that damage, insurers have a right to take over and organise the work themselves. In addition, anyone with an interest in the premises, who is not himself the insured, can also require the insurers to take this step (Fires Prevention (Metropolis) Act 1774). Note that this does not apply if the insurer is a Lloyds syndicate.


2. Issues for businesses occupying premises as tenants and their landlords:

Who is responsible for insuring and repairing physical damage to the business's premises?

This will depend on the terms of the lease. In the UK most commercial leases provide for the landlord to be responsible both for taking out insurance and for ensuring that the premises are repaired (although the tenant is usually required to reimburse the cost of the insurance premiums to the landlord), but there are exceptions.
The lease will need to be reviewed to establish the position.
Tenants need to check in particular that the lease says that, in the event of damage by an insured risk, their normal obligation to keep the premises in good repair is suspended.

If both the landlord and the tenant take out insurance policies covering the same damage then only a proportion of the cost of repairing that damage will be recoverable from each insurer.

Will the property insurance cover fixtures, fittings and stock inside the premises?

It is unusual for buildings insurance to cover a tenant's fixtures, fittings and stock, but it is possible and this will need to be checked. If these items are not covered by buildings insurance there may be a separate business risks policy which does provide cover.
It may be unclear whether any damage to the trade of a business which is not physical damage can be recovered under a business risks policy. This will depend on the terms of the policy itself.

Will the insurance pay-out be sufficient to cover the cost of repair?

Whether it is the landlord or the tenant who takes out the insurance the lease will normally require the insurance to be to the "full reinstatement value".
If a landlord is obliged to insure but does not take out enough cover or does not increase the level of cover to take account of inflation he will normally have to make up the shortfall out of his own funds. The reverse is normally true if the tenant is the one obliged to insure, however this does depend on the exact terms of the lease.

If the premises are destroyed, does the lease come to an end?

It is unusual for UK commercial leases to be brought to an end when the premises are destroyed, but if it is immediately clear that the destruction is so total that the premises can ever be repaired, the law may say that the lease has been "frustrated" and both parties can walk away. Even where this is not clear leases often give landlords or tenants a right to walk away if they do not think there is a reasonable prospect of repairing the damage within a given timeframe. This will again depend on what the particular lease says.

Tenants may want to start looking for temporary alternative premises at an early stage.
The terms of any tenancy agreement they sign for the alternative premises must be sufficiently flexible to allow them to move back to their original premises when those premises are ready again.
The tenant's business interruption policy should be checked to see whether it covers the cost of an alternative rental and the costs of moving there and back.

If the tenant cannot walk away, what happens to the rent payable while the premises are unusable?

Most commercial leases provide that the rent (or a fair proportion of it) is suspended while premises are unusable. This is also known as "cesser of rent". If a service charge is also payable it may also be suspended but this is less common. Normally where premises are damaged they are not receiving the benefit of any common services and it may be possible for tenants to argue that therefore no service-charge should be payable. The suspension of the rent is normally only for a limited time, often a maximum of three years. At the end of the suspension period, if the premises have not been repaired, it is common for either the landlord or the tenant to be able to walk away. The lease will then come to an end, the landlord keeping any buildings insurance money payable. Not all leases have this provision.
It is essential to be aware of the precise effect of the lease's particular cesser provisions.


3. General issues:

Can my business recover compensation from those convicted of a crime against it?

The criminal courts have an inherent jurisdiction to make compensation orders in favour of the victim against those convicted of a crime .
A business can be a victim.
If the victim has any resources it may be possible to recover something. Businesses should contact their local police at an early stage if they want to pursue this remedy.
The Crown Prosecution Service or the Police will then investigate and may then bring the issue to the court's attention.

Victims of crime can bring civil actions against those who have caused them harm or financial loss.
The burden of proof in such actions is less onerous than in a criminal case, but there is no guarantee that the costs of pursuing such an action, let alone any compensation, can be recovered from someone with no assets.

Can I claim compensation from the Police?

Under the Riot (Damages) Act 1886 ("RDA") it is possible to apply for compensation from the relevant police authority as a result of the damage caused to property during a riot.

It is necessary to establish that the loss or damage was caused by at least 12 persons "riotously or tumultuously assembled" together with a common purpose and intent to help one another by force if necessary against any person who may oppose them in the execution of that common purpose and that force or violence was displayed in such a manner as to alarm at least one person of reasonable firmness or courage.

The rioters must have been in such numbers and in such a state of agitated commotion and have been acting so that the forces of law and order should have been well aware of the threat that existed.

CCTV evidence and media footage should assist in this regard (copies of which should be retained if originals are to be submitted to the police). Claimants should also consider sending details of their loss or damage to their buildings and/or contents insurer.
If a claim is to be made it has to be done so in a prescribed way. The Regulations made in respect of the RDA require a prescribed form to be used.

The claim must be made within 14 days of the riot.

It is often difficult to establish how much loss was suffered within that time frame.
Assessments and documentation produced by Insurance company loss adjusters may be helpful. Under the RDA there is a provision allowing the claimant to apply to the Police and ultimately the Secretary of State for an extension of time for making the claim to 42 days.

We have experience of claims being rejected on the basis that the damage was not caused by riotous and tumultuous assembly and so a careful consideration of the facts may be required.
Any payment to by the compensating authority will also be reduced to the extent that insurers have reimbursed the claimant for any of its losses, but the insurers will be able to step into the claimants shoes and pursue the claim against the authority for the money they have paid out.


4. Employee issues:

Can a business insist that staff to come to work if they are affected by the riots?

Employers are obliged to provide employees with work to do and employees are obliged to undertake the work provided, so the general rule is that employers can require employees to come to work. However, employers are responsible for the health and safety of employees who attend work. Therefore if there is a real and imminent risk of danger an employee could legitimately refuse to attend work.

What can businesses do to protect staff who live or work in or are commuting through the zones affected by rioting?

Employers should consider making adjustments to protect the health and safety of their employees.
If employees can work remotely, then employers should consider home working to prevent them having to commute though affected areas.
Where employees have to attend their place of work then employers should consider whether they should make adjustments to reduce the risk such as changing the working day so that employees start earlier and leave earlier.

Employers could also consider organising travel arrangements such as a pick-up/drop off service or a buddy or lift-sharing system to ensure that employees do not have to travel alone.

What should businesses do for staff who are unable to work?

Employers are only obliged to pay employees for work provided.
If employees are unable to work, then employers are not obliged to pay them.
However, consideration should be given to the effect that withholding payment of wages will have on workplace morale in the event that employees genuinely are unable to get to work due to circumstances beyond their control.

If employees are unable to work because their place of work has been closed down due to damage, the employer's obligation to continue paying employees will depend on their contracts of employment.
If the contract contains a specific clause permitting this, employers may be able to 'lay-off' staff who cannot work.

A lay-off is a period when the employer does not provide any work and the employee is not paid.

However, if an employer lays off an employee without having an express or implied contractual right to do so, this will be a fundamental breach of contract.

This would entitle the employee to resign and claim to have been unfairly constructively dismissed. As an alternative, an employee may choose to remain in employment and claim the shortfall in wages.
Where lay off is imposed, employees will be entitled to a guarantee payment so although employers will save salary costs by imposing lay off, there will still be some ongoing cost to the business.
The amount of a guarantee payment payable to an employee in respect of any day is the sum produced by multiplying the number of normal working hours in the day by the guaranteed hourly rate.
The guaranteed hourly rate is the amount of one week's pay divided by the number of normal working hours in a week.
A guarantee payment in respect of any day is currently subject to a maximum of £22.20 such payments cannot exceed a maximum of five days in any three month period. Once an employee has been laid off for four or more consecutive weeks or for a series of six or more weeks (of which not more than three were consecutive) within a period of thirteen weeks, he can treat himself as redundant, give notice of termination and claim a redundancy payment.
Alternatively employers may be able to require employees to work at another site, if their contracts contain a mobility clause which allows the employer to require this.

Employers whose business premises have been destroyed may have to consider redundancies. Normally proposing the redundancy of 20 or more employees would require prior consultation, which is likely to be impossible in these circumstances.
Failure to consult can lead to a protective award of up to 90 days' pay per employee. However, this may be a rare situation in which an employer would be able to rely on the 'special circumstances' defence i.e. that there were special circumstances which made it impracticable to comply with the obligation to consult.

What health and safety policy can be put in place for businesses and their staff over the next few days to ensure protection of staff?

A risk assessment should be undertaken by employers and appropriate measures implemented to ensure that the risk to staff is minimised.
Measures to be considered include home working, working from remote locations to avoid travel to and or through areas of trouble and offering employees the opportunity to take holiday.

If an employer's business is one which might make it especially exposed to an attack, the employer should consider implementing a policy on steps to be taken in the event of an emergency, on securing and/or evacuating the premises and on avoiding harm to any employee through resisting an attack.

Best of luck...