Insurance Is Not Just for a Rainy Day

With the Commonwealth Games underway, Glasgow has quietly opened up an infrastructure blockage that has been in place for almost five months. What started as a minor incident in a small secondary retail unit back in March brought Scotland’s largest city and one of Europe’s busiest railway lines to a standstill overnight.

A small fire in a retail unit quickly took hold of the upper floors of the building and, despite the best efforts of the fire service, spread to the adjoining buildings all along the street frontage. The retail unit was sited on the ground floor of Union Street next to the entrance to Glasgow’s Central Station: the terminus for the West Coast Mainline, one of the busiest mixed-use railways in Europe. The mainline terminus was closed overnight and out of action for over a week. Rail travel to the south of the city was out of the question, but access to the station remained limited for over four months. Replacement bus travel faced extended disruption with Union St – the main bus corridor running southbound through the city – completely closed while unsafe building structures were demolished.

The main bus corridor on Union Street may be reopened at last, but any rebuilding proposals will not be quick. Coming at the same time as it is announced that faithful restoration of the Glasgow School of Art’s Mackintosh Building may now never be possible, all eyes will be on city officials to do everything in their power to ensure a swift return to life for Union St. The Glasgow School of Art was a single owner. The Land Register of Scotland discloses that the retail unit where the Union Street fire started changed hands in 2008 for £540,000, with a further 12 different registered owners in the single block along the Union Street frontage alone. Even where multiple owners are paid out under their own insurance policy, the various insurers will no doubt face protracted action amongst themselves over where liability rests. There will be pressure on the local authority to acquire the site by Compulsory Purchase rather than leave the owners to co-ordinate rebuilding, but with the number of owners in play to be compensated, that will not be a quick fix.

One would hope that the owners had buildings insurance in place as standard. If the property was let to the retail occupier under a standard commercial lease, we would expect that the tenant pays the insurance premium and is responsible for all statutory compliance matters including fire safety. That being the case, the landlord would not be out of pocket for any insurance costs. However, it remains to be seen if insurance is adequate.

A well-drafted commercial lease would normally provide that the building owner should insure the building to the full reinstatement cost, including the costs of shoring up, site clearance and debris removal in addition to the professional fees and build costs.

When you add in the complication of the proximity to the railway line, consents for any rebuilding works will be years in the making. Both site clearance and rebuilding are going to involve continued closure of Glasgow’s main southbound bus corridor. The costs of “building reinstatement” here are likely to be exponentially greater than the simple costs of materials and contractors to do the building work.

We always advise our clients to have buildings insurance in place before completion of any property purchase, as you never know when disaster will strike. Overnight events in the centre of Glasgow show that insurance isn’t just a piece of paperwork to have in place for the lawyers and the banks, and a bargain insurance premium can be a false economy if the spiralling additional costs aren’t covered.

Owning commercial property can come with many costs, but trying to cut out those costs could turn out to be very expensive indeed.

The information and opinions contained in this blog are for information only.  They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice.  Before acting on any information contained in this blog, please seek solicitor’s advice from Gilson Gray.