What Is Commercial Property Insurance?
Commercial property insurance is protection for lanlords who are renting their commercial property to 3rd parties to use to house their business. The organisation, group or business who has a rental agreement with you allowing them to use your property for their business use is your tenant. This rental agreement between you and your tenant defines you as a landlord and qualifies you for commercial property insurance.
Differences Between Commercial Landlord Insurance & Domestic Landlord Insurance
There are two main areas that separate commercial property insurance from a residential landlord insurance policies are:
The types of buildings used as commercial property are usually not as standard as they are in domestic rental properties, such as:
- Wooden barns,
- steel structures,
- flat roofs,
- different types of heating systems,
- complicated specialised electrical systems etc.
These differences mean the expense and time taken to repair damage could be greatly increased and you may need to take out insurance that can take this into account.
Commercial property insurance takes into account the uses of the building and provides cover that will weigh the risk to your property that your tenants pose. Commercial property insurance providers need an understanding of the type of building you have and what use it will be put to, when assessing the risks and costs involved. Domestic tenants are not, on the whole, supposed to be:
- Utilising industrial equipment,
- dealing with industrial chemicals or hazardous waste
- using industrial cooking machinery like commercial chip fryers, in their homes
- housing lots of employees,
Property Owners’ Liability
This is often the overlooked and misunderstood by commercial landlords. Property owners’ liability insurance for business properties is to compensate 3rd parties in respect to property damage and injury through negligence. You as the property owner and not your tenants are liable, in these cases as it’s ultimately the landlord’s responsibility to adequately maintain and repair their property.
Commercial Building Insurance—The Cost Rebuilding
This is an essential feature of commercial property insurance. It covers the damage repairs and rebuilding costs of your building. Commercial building insurance cover for the total rebuild cost of rebuilding your property is crucial. As being under insured (whereby you give a false value for the rebuild cost) could be disastrous should the need arise which would mean you need to claim for the full amount, as most insurers have a ‘condition of average clause’, which means if the sum insured for your buildings/contents is less than the total cost of rebuilding/replacing your property, they can reduce the claim by the percentage that you underinsured by. For example if you're insured for £100,000 and the insurance should be £150,000 and submit a claim for £60,000 you might only be able to claim £40,000 (minus 33% of the difference).
Loss Of Rent—Period Of Indemnity
Following insurable perils such as a fire or a flood, should your property become uninhabitable, the insurance will pay out for the loss of rent you are unable to collect, so that you aren’t financially inconvenienced. The period of indemnity is the length of time that ‘loss of rent’ can be claimed for.
The difference between your ‘contents’ and your ‘building’ is that anything unattached would be classed as contents, such as office furniture unattached storage facilities (filing cabinets etc.), tables and chairs are contents whereas the doors, fixed cupboards and walls would be classed as buildings insurance. Certain business premises may be rented with specialist equipment and facilities already inbuilt, for example a catering establishment might have a commercial kitchen already fitted. This would make contents insurance essential for your protection.
Do tenants need their own contents insurance?
Tenants are responsible for accidental damage to their own contents, as a landlord you are not. Any items owned and brought into your premises by the tenant will be covered under their own business insurance policy.
What Else Can Be Covered?
You must ask for accidental damage from the outset that you require accidental damage cover, as it's not always offered as standard. Accidental damage is considered to be damage caused to property that is both unforeseen and unintentional, not classed under another insurable peril. (Such as bursting a water pipe whilst hanging a picture etc.).
Legal expenses insurance is purchased to fund the costs of legal advice and/or the costs of bringing or defending a court case.
Properties which are unoccupied are more vulnerable to petty crime, break-ins, and even squatters. So generally, insurers will not include unoccupied properties on their policies as standard. You are usually allowed around 30 days grace If the property is temporarily un-occupied during a changeover of tenants or a renovation, before you should convert your landlord’s insurance to an unoccupied property policy.
Flat Roof Warranty
In commercial properties leaks from flat roofs can be quite serious as loss of rent for the landlord and damage to stock and contents belonging to both the tenant and the landlord, can result. A 'flat roof warranty' clause maybe included in the policy by some insurers for this reason. A minimum amount of servicing and state of repair is required for all sections of flat roof. The roof must be professionally checked and maintained by the landlord.
Other Things To Consider
Combined Commercial & Domestic Properties In One Building
Many landlords require insurance for a commercial property that includes domestic accommodation contained within the building. We can provide a combined cover for the dual purposes.
If a tenant makes structural improvements to your building such as installing a professional kitchen say, the tenant should add this to their business insurance, as they are, technically, the owner of the new kitchen equipment, even though it may be part of your building. So while they are still your tenant, they should be accountable for the improvements insurance and both parties benefit from the cover.