Written by Kyle Swain, Retail Director, Australia and New Zealand – Lpc Cresa
Our thoughts are with everyone impacted by the devastating flooding in Townsville and Far North Queensland this week. Having assisted a number of retailers impacted by the 2017 floods resulting from Cyclone Debbie, we have some idea of the financial and mental stress these events can place on small business owners. Actioning a few critical steps during and immediately after the event can play a huge role in ensuring your businesses recovers quickly.
Unfortunately, many retail businesses never recover from these extreme weather events. Those who do, often struggle under the weight of massive financial losses resulting from damage to their stock, fixtures and fittings and 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.
Many retailers in areas that can be affected by these types of weather events are generally well prepared for the immediate physical impacts. They have well-rehearsed disaster management plans in place to prepare their businesses including boarding up windows, moving everything possible to higher ground and taking other precautions to make sure lives are not in danger.
However, it is also important to have a disaster management plan in place that helps with the clean-up and re-opening your shop as quickly as possible once the immediate danger to property and lives has passed.
Here are a few tips from us which we hope will help lessen the longer-term impact and improve your chances of a quick recovery and returning to profitable trading.
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Know your lease
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 also cover the responsibilities of the centre or premises (or both) should your tenancy be damaged or destroyed, and as a result, you cannot use or access the premises.
Generally, in these situations, the lease does continue, however, the tenant may terminate the lease with just five business days’ notice if the landlord does not begin to re-build the premises within a reasonable timeframe.
If the landlord does begin to re-build the premises, he or she is not liable to pay the tenant compensation but must reduce the base rent and any other money by a reasonable amount depending on the type and extent of the damage. This can be a delicate negotiation between the tenant and landlord and the outcome can be significantly improved by a specialist lease negotiator representing you.
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Know your insurance
It is your insurance company, and not your landlord, with whom you will need to lodge a claim with as soon as possible after the disaster.
Contact your insurance broker or your insurer direct 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.
Many insurers, particularly when the cover is for higher risk areas like Far North Queensland, do not cover flooding, so the first point of business is determining your cover, and whether the damage is caused by an ‘Act of God’, a ‘Natural Disaster’ or what the insurers classify as ‘flooding’. Having those tough conversations with your insurer must be your first priority to make sure they cover you for the damage.
Your landlord is in the same situation as you and will also be working with their insurers to begin a claim for any damage to their asset. 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.
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Document everything
Hopefully, your insurer has agreed that the event is covered under your insurance. To assist with your claim being dealt with as quickly as possible, it is important to ensure you document everything. Document your preparation leading up to the disaster. If possible, have photos of the steps you took to prevent damage e.g. sandbagging, boarding up windows, etc.
Without putting lives at risk, show how the damage was caused e.g. flooding, rising tide, controlled release of water, roof leaks etc. And then, once the water 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.
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Claim lost revenue
Your insurance claim will remain open as you begin to calculate the losses to the business including the 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 or the landlord’s building.
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.
Whilst your first call should be to your insurance broker or insurer direct, there are always opportunities to negotiate some beneficial outcomes with your landlord when these types of situations occur.
If your shop has been affected by the recent flooding in Far North Queensland, you can call us to help understand your rights under your lease and the Queensland retail tenancy legislation. We can also discuss what opportunities may be available to you to assist in the short term to ensure you stay in business and make the best recovery in the shortest period of time.
Lpc Cresa is the leasing and tenancy consultant to the National Retail Association. NRA members can contact Lpc Cresa by calling the NRA hotline on 1800 RETAIL (1800 738 245) for a complimentary 10 – 15 minute consultation to discuss their retail lease.
Image: One of Townsville’s retail streets impacted by the flooding. (Source: Surf Life Saving Queensland.)