Natural Disasters: Top three tips to limit losses and re-open for trade
Our thoughts are with everyone impacted by the devastating fires in NSW and Queensland which continue to threaten homes, businesses and possibly more lives this week as well as those affected by the severe storm event north of Brisbane on Sunday.
Having assisted a number of retailers impacted by the 2017 floods resulting from Cyclone Debbie, and the flood disaster through Northern NSW and South East Queensland in early 2019, we have some idea of the financial and mental stress these severe weather events and natural disasters can place on small business owners.
Unfortunately, many retail businesses never recover from these extreme events. Those who do, often struggle under the weight of massive financial losses resulting from damage to their stock, fixtures and fittings and the physical shop as well as the loss of trade during and after the event. Even when they manage to re-open, sales can be heavily impacted for many months as the entire trade area is generally affected and takes time to recover.
Being aware of assistance available to you and actioning a few critical steps as soon as possible after such events play a huge role in ensuring your businesses recovers quickly and losses are minimised.
If your retail shop has been affected by bushfires, severe storms, flooding or any other type of disaster, here are our top 3 tips to help lessen the longer-term impact and improve your chances of returning to trading as quickly as possible.
1. Know your rights and obligations – your lease and legislation.
If the building your shop is in is damaged, NSW retail tenancy legislation provides for the tenant to pay no rent or outgoings until the premises can again be used or accessed. If the landlord advises the tenant the repair of the building is impractical or undesirable, either party may terminate the lease with 7 days’ notice. Similarly, if repairs are not completed within a reasonable time, the tenant may terminate the lease with 7 days’ notice. Similar provisions exist for Tasmania, S.A, ACT and NT.
Unfortunately, there’s no such provision for Queensland or WA, so any similar abatement would need to be by negotiation and mutually agreed between the tenant and the landlord.
Your lease will usually include a section covering your responsibilities as a tenant around insurances. It will require you to have insurance cover with a reputable insurer for the usual risks covering the tenant’s property within the premises for its full value, while at the same time require you as the tenant to indemnify the landlord against any action or demand due to any damage, loss or injury caused by various situations such as a natural disaster.
The lease should cover the responsibilities of both the landlord and the tenant should your tenancy be damaged or destroyed. This topic is also covered under legislation which will override any terms in the lease which do not reflect the provisions under retail tenancy legislation.
Generally, in these situations, the lease does continue, however, there are provisions in the legislation which allows tenants to terminate the lease under certain situations.
2. Tenant AND landlord to lodge insurance claims asap
It is your insurance company, and not your landlord, with whom you will need to lodge a claim as soon as possible after the disaster. Your landlord is in the same boat as you and will need to do the same.
Contact your landlord as soon as possible to get an understanding of their claim and expected timeframes for any repairs needed so you can get your shop trading again and return to full capacity as quickly as possible. Timeframes for your landlord’s insurers to assess and provide cover for repairs to the building could prevent you from trading and may also have an impact on your own claims.
Get your own insurance broker or your insurer involved as soon as possible to open a claim and ask what their exact requirements are for a claim to be processed then set about documenting all damage and compiling all information your insurer requires to process your claim.
To ensure your claim is dealt with as quickly as possible, it is important to ensure you document everything. If possible, have photos of the steps you took to prevent or limit damage e.g. wet blankets, hosing down the building, regular servicing of sprinkler systems, boarding up windows, etc.
Once all risk to personal safety has subsided, take photos of the damage including stock, fixtures and fittings and your tenancy itself e.g. paint, carpets or flooring, walls, etc. Even keep newspaper articles to show the impact of the event specific to your shopping centre, strip of shops or local area.
3. Claim all losses including future losses
Your insurance claim will remain open as you begin to calculate the losses to the business including capital costs to repair damage and re-fit the store, damaged or destroyed stock, revenue losses during the time you were closed as well as when you re-opened if you were unable to return to normal trading conditions due to the damage caused to your premises and/or the landlord’s building, and also future losses for the time it will take to return to pre-disaster trading conditions.
For this, you’ll need to show your revenue before the event, during the time you were unable to trade as well as the time it took to return to full operation. Your accountant should be able to help you put this into the correct format to include in your insurance claim.
The landlord is not liable to pay compensation for loss or damage suffered where they take action as a reasonable response to an emergency.
Whilst your major focus should be on your insurance claim, there are always opportunities to negotiate some beneficial outcomes with your landlord when these types of situations occur, and they may appreciate you sticking with them to work through the disaster recovery period.
If your shop has been affected by the current bush fires, severe storms or any other type of natural disaster, you can call us to help understand your rights under your lease and the retail tenancy legislation relevant to your location.