Sometimes a lease will say that after division of the insurance moneys, either side can terminate the lease. Alternatively, it may be the case that L is simply unable to reinstate (eg if the land is needed for public purposes). Accordingly, it is important to consider what will happen if the insurance moneys are received but the property is not actually rebuilt. In that situation, T will simply be entitled to a proportionate share of the insurance moneys (based upon the relative proportion of L’s and T’s interests in the property), and that will be an end to it. The problem, of course, is that the building will probably only have been insured for rebuilding and reinstatement costs – which are likely to be far less than the open market value of the original building.

So, if L does not have to reinstate, there is a danger to T of simply getting a share of the insurance moneys. That means that T loses out on the equity that he had in the actual building (ie the premium to its building costs value). In practical terms, conveyancers should check carefully to see what rebuilding and reinstatement obligations fall on L. If there are any situations in which L is not obliged to rebuild then care should be taken, and the potential T advised accordingly. At the same time, an article in the Gazette refers to a forthcoming precedent in the Encyclopaedia of Forms and Precedents that will attempt to deal with this problem (basically by requiring L to pay T the open market value of the lease/property). For a commentary see [2008] LSG 24 April 32. © Practical Lawyer