Early in the design and contractual negotiation process, it is key that the tenant agrees the position with the landlord regarding how their contractor will be treated during the works in respect of the risk of damage being caused to the existing structure.

There are three main options in this situation:

1. The ideal solution for the tenants contractor would be that the landlord agrees to name both the tenant and their contractor as composite insureds on the existing structures property policy, which would mean that they cannot subrogate against them in the event of a loss. Failing this, a written confirmation of a full waiver of subrogation would suffice.
2. It is often difficult to obtain the above solution, given that naming the tenants contractor on the landlords policy could affect their claims experience, so a secondary option would be to agree a cap on liability for the tenant’s contractor during the works. The property insurers can agree to provide the tenant’s contractor with a waiver of subrogation above a specified limit, which is commonly a nominal value, e.g. £10m or £20m (depending on the size of the existing structure). From the tenant’s contractors’ point of view, the lower the better.
3. Should this not be something the landlord and their insurers are willing to agree to, the worst-case scenario is that the tenant’s contractor is not given any beneficial cover on the property insurance and is held fully liable in respect of damage to the existing structure arising out of the works. Thus the tenants contractor will have to rely fully on Third Party / Public Liability (TPL) insurance to protect themselves. It can be more efficient and ultimately helpful in the commercial negotiations if the tenant (employer) procures the TPL for and on behalf of their contractor.

When carrying out tenant fit-out works to an existing building, there are three key construction insurances to consider:

1. Firstly, Construction All Risks (CAR), provides indemnity for damage to the contract works, permanent or temporary.
2. Loss of Revenue/Delay in Start Up cover is available to insure financial losses you would suffer following insured damage to the contract works (note that this insured damage must be covered under the Construction All Risks insurance to trigger any cover under the Loss of Revenue insurance). For the tenant, the financial loss could be the cost of sourcing alternative accommodation in the event that the works are damaged and therefore delayed.
3. Finally, Third Party Liability insurance protects tenants against their legal liability for damage or injury to third parties or third-party property, but the extent to which this is required will be defined by the outcome of any negotiations with the landlord in respect of cover provided under their property programme.