Understanding Commercial Property Insurance

What Is Commercial Property Insurance?

Commercial property insurance protects property owners/landlords as they let out their property to commercial occupants. This type of insurance policy is important due to the variety of costly incidents that can stem from allowing another party to occupy your commercial property, such as industrial units, offices, barns or steel structures. Depending on the type of commercial occupant you let to, the risk can be considerable. 

To qualify for this type of policy, a property owner must have a formal rental or lease agreement in place with their commercial tenant that establishes themselves as the landlord and the occupying entity as the tenant.

What am I covered for?

A commercial property insurance policy comes with cover for the numerous risks that may arise concerning the property that you own, such as:

• Liability for injury or damage—In the event of property damage or personal injury occurring due to a landlord being negligent in maintaining the property, the policy will provide costs towards defending or settling a claim against the landlord. 
• Necessary repairs—If a building or property is damaged and must be repaired or rebuilt, commercial property insurance covers the repair costs.
• Loss of rent—If a property becomes unfit to be let due to an insurable event—such as a fire—the loss of rent incurred can be recouped through a section of your commercial property insurance policy.
• Damage to landlords’ contents—Landlords will often own some of the contents inside the buildings they let out, such as a fitted kitchen, flooring or even racking in warehouses. Commercial property insurance policies will provide cover for such items if they are damaged and your lease agreement stipulates that you are responsible for insuring these items.

This is not an exhaustive list of everything a commercial property insurance policy can cover and it's important to note that there are additional scenarios that may not ordinarily be included in a standard policy. These options might include cover for intentional property damage committed by a tenant (malicious damage) or legal fees. 

Insurance terms to be aware of…

Policyholders need to understand all aspects of their commercial property insurance. Certain scenarios will trigger additional conditions or requirements, such as: 

• Unoccupied properties—Due to unoccupied properties having a higher risk of break-ins and vandalism among other such crimes, most insurers will not cover unoccupied properties under commercial property insurance. There is usually a grace period that can vary from one insurer to the next but is often 30 days between when a property becomes vacant and when the owner will be required to switch to a vacant property insurance policy. Always notify the insurer when the property becomes vacant or is re-let.
• Wear and tear—Regular maintenance of a property is expected as a landlord. These costs are not covered by commercial property insurance. Policyholders should take the time to understand exactly what types of damage their insurance will cover, and what types will be considered general wear and tear.
• Flat roof warranty—Flat roofs are considered to be a higher risk than a pitched roof because they are prone to leaks resulting in property damage. If a property’s roof has flat sections, insurers may require owners to perform certain servicing and repairs regularly as part of the agreed contract of insurance. 

Domestic VS Commercial – What is the difference?

Property owners must understand the differences between commercial property insurance and domestic landlord insurance. The two primary distinctions that should be understood include:

• Tenant types—An insurance policy needs to be composed relative to the potential risk that a landlord’s tenants may pose. For example, a domestic tenant may generally be considered a lower risk due to it being less likely that they will be using industrial equipment or handling hazardous substances.
• Building types—Commercial properties may come with a wider variety of building materials or infrastructures such as a steel frame, cladding or complex wiring systems which pose increased hazards and potentially greater costs in the event of a claim.

In Conclusion

Letting out property to third parties comes with risk, just like everything else in life. Being a landlord can be profitable and rewarding but there are a massive range of things that could not necessarily go as planned and become costly. A commercial property insurance policy is a great way of transferring the risk of specific financial blows away from yourself and on to an insurer. 

The property insurance market is a changing world at the moment with some insurers on the receiving end of some substantial property claims. Take a look at our recent article to see other factors that are making property insurers take a different view on the buildings they insure - Property Insurance Update – What’s happening in the market and what will impact your premiums in the coming years. 

At Alan & Thomas we work hard to find you the right insurance policy for your budget and cover requirements. A key component of what we can do to help is helping to manage the risks you face as a property owner. We'd love to hear from you and we'd be more than happy to talk through your insurance requirements as a landlord of commercial property, and how we think we can help.