Commercial property insurance: what it covers and who carries it
Cover for the owner of a commercial building for the structure, loss of rent and liability as a landlord.
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In short
- Commercial property owners cover insures the building, the loss of rent and the owner’s liability as a landlord.
- The lease decides which risks sit with the owner and which are pushed to the tenant.
- An unoccupied building changes the risk and usually the cover.
Commercial property owners insurance is written for the person who owns the premises rather than the business trading in them. It covers the structure, the income the structure produces, and liability arising from the owner’s position.
It exists in constant conversation with the lease, which is the document that allocates responsibility between owner and tenant.
Also called: commercial landlord insurance, commercial property owners, building owners cover
Building, rent and liability
The building section responds to damage to the structure and to landlord’s fixtures. Loss of rent responds when the damage makes the premises untenantable, and runs for a defined indemnity period.
The liability section covers the owner as occupier or landlord, which is a different exposure from the tenant’s liability for its own activities.
What the lease shifts
Commercial leases commonly make tenants responsible for glass, for their own fit-out and contents, and for insuring their own liability. They may also require the tenant to be noted on the owner’s policy or the reverse.
Reading the insurance clause of the lease is the practical starting point, because owner and tenant policies are arranged separately and neither party sees the other’s.
What people get wrong about it
The first error is insuring the market value rather than the cost to rebuild, which are different numbers and move independently.
The second is not telling the insurer when a tenancy becomes vacant, since unoccupied buildings commonly attract restricted cover.
The third is assuming the tenant’s policy covers the building, when it usually covers only their fit-out and contents.
Questions
- My tenant has insurance. Do I still need cover?
- A tenant generally insures its own contents, fit-out and liability. The building and the rent it produces are the owner’s exposure, and the lease sets out who carries what.
- What happens if the building is empty between tenants?
- Unoccupancy usually changes the cover, and many policies restrict perils or require notification after a period. It is a condition rather than a formality.
Occupations that commonly carry it
Ordered by how central this cover is to each occupation in the graph. A pattern in the data, not a statement that any business is required to hold it.
- Accommodation providers — Motels, holiday letting and short-stay operation with guests on site.
- Property managers — Management of rental property, tenancies and trust money on behalf of landlords.
- Retailers — Shopfront sale of goods, with stock, customers and a lease to manage.
Sources
- Moneysmart (ASIC) — General guidance on business insurance from the regulator’s consumer site. A starting point, not a definition of this cover.