Last week, we put together an article providing updates on the commercial properties that were affected as a result of the Lekki-Tollgate attack. Looking at the quantum damage that was done to those properties, you may wonder the way forward for the tenants whose goods were looted, or the landlords whose properties were destroyed. Based on our conversation with market players, we will be reviewing the effect of vandalism on shopping malls, especially focusing on the insurance covers that are typically captured in a lease agreement, and how businesses managed to survive during the xenophobic related attacks in Q3:2019. 

The Xenophobic related attacks of Q3:2019

The xenophobia attack of 2019 was an eye-opener for asset owners especially in the retail sector in Nigeria. Prior to the attack, one of the major formal retail centers in Lagos had insurance that only covered damages relating to the structure and external finishes. This meant a loss for the asset owners as the insurance obviously did not cover the full extent of the damage suffered due to the attack. Afterward, the mall upgraded the coverage to fire; damage to landlord owned furniture and fixtures in common areas and in the facility management spaces. Similar actions were also taken by several other shopping malls within the country.

Insurance provision in a typical lease agreement 

Lease agreements typically spell out the terms of engagement between the landlord and tenants. Although Landlords are not compelled by law to insure their property (except when the property is to be acquired through a mortgage) it is advisable to cover the asset against fire and other perils. However, the extent of insurance cover will depend largely on the value of the property, the date it was completed and put on the market while the indemnity will also vary based on the type of peril covered. 

Property owners insure their assets against any form of destruction which in most cases does not cover tenant properties. Some prudent landlords in the Nigerian retail space typically require tenants to get general liability insurance cover which should cover damages and theft to their property and equipment within their space. For the prudent landlords, the choice of insurance will likely be above the market standard of insurance of the premise and finishes, and will likely cover business interruption, sabotage and terrorism, and general public liability insurance. 

What happens next?

While some can argue that it is the landlord’s duty to protect the mall, the landlord will only be liable for breaches in security that are a result of gross negligence. Given the scenarios over last week’s attack, it is unlikely that this was the case, hence both landlord and tenants will run to their insurance provider for indemnity. While both parties seem to likely carry the weight of insurance differently, Landlords can not always turn a blind eye to the damages faced by the occupiers.  This is because the failure of the tenants to get back on their feet will mean the tenant is at risk of defaulting or reneging on their obligations and it is in the landlords’ interest that things get back to normal as quickly as possible. Speaking from the xenophobic experience, concessions, or capital pools which are eventually paid back will likely be created by the landlord to support the recovery process for the tenant. This however will be treated on a case-by-case basis and will depend on the agreement between the landlord and tenant.