Railway Lease Insurance

There is a statutory obligation on the part of the railway companies to retain powers of re-entry to former railway property. This may be for the purposes of maintenance and urgent repairs, or it may be because they wish to redevelop the site, or for no given reason. Because re-entry rights are a statutory obligation, the railway companies never waive these clauses.

There is therefore a forfeiture of lease risk with any land or property that is leased from a railway company. It is the practice of railway companies to insert in their leases of railway property forfeiture, clauses that are usually on either of the following lines:

  • If the railway company requires the demised premises for the purposes of their undertaking six months notice is normally given
  • If possession is urgently needed, for example for carrying out repairs, a shorter notice period may apply

Why take out Railway Lease Insurance?

Railway lease insurance is relevant where the lease of the property contains a determination clause whereby the lease may be terminated at short notice by the lessor, being a railway company.

The statutory power of re-entry can mean reluctance by lessees to invest money in the property. For businesses operating out of railway related premises, such as arches under railway lines, a sudden forfeiture of lease can have severe financial consequences.

These problems make it difficult for the railway companies to market property and they will often refer lessees to insurers.

Railway Lease Insurance Benefits

Railway lease insurance provides a financial compensation related to costs (such as financial expenditure and business interruption) involved in a forfeiture of the lease.

Generally, a policy will provide a lender with cover for loss relating to:

  • Loss in connection with the mortgage or loan resulting from the exercise of the determination clause
  • All other costs and expenses incurred with the prior written consent of the Insurer

Where cover is available for the benefit tenant a policy may be extended to provide cover for loss relating to:

  • Loss in market value
  • Fit-out costs
  • Relocation costs
  • Loss of profit

A forfeiture of lease insurance policy is usually non-assignable and provides cover for a specified period.