If you are a property owner, and let out the property to third parties for commercial use, you will need to have commercial property insurance.
Also known as commercial landlord insurance, it is designed to cover the cost of repairing damage to the property, or rebuilding, if required.
In this situation, you are a landlord, which brings certain responsibilities. Meanwhile, the tenant is the group or business who you have agreed to rent to, and they also have certain responsibilities.
How is it different to domestic landlord insurance?
The type of tenant and the type of building are the two main areas which are different to a normal residential let property insurance policy.
It is highly unlikely that domestic tenants will be accommodating large numbers of people (employees), handling hazardous waste, or using industrial equipment. Insurance companies will look at how your property will be used by the tenant, and provide a suitable insurance product based on the risks and potential costs involved.
Commercial properties are also substantially different to normal domestic properties. They will generally have larger, more complex systems for the electrics and heating, and may even have issues with asbestos, for example. If anything goes wrong, it will generally be a more expensive, lengthier procedure to fix the problem than it is for domestic properties. Therefore, a specialised insurance product that factors this information in will need to be provided by the insurer.
The cost of rebuilding
The property owner needs to be insured for the full cost that would be incurred if the property needed to be completely rebuilt, if it was ever destroyed.
The rebuild cost is a crucial part of the insurance cover, and being under insured can cause very serious problems, if you were to state the cost to fully rebuild the property to be less than it actually costs.
Liability of property owners
Landlord liability insurance for commercial property, which compensates third parties in the event of damage or injuries caused by the owner’s negligence, is very important.
As the owner of the property, you must ensure it is adequately maintained. Failure to do so could result in you being held liable for an injury or damage caused through negligence.
Loss of rent
If an insurable event occurred and resulted in your property becoming uninhabitable, the insurance policy pays the rent you lose as a result, to prevent you from losing money you would have otherwise received.
The time period within which you can claim for the ‘loss of rent’ expenses, is known as the indemnity period, and careful consideration should be given to how long your indemnity period will be – it could take a long time to repair or rebuild the property.
Flat roof warranty
If the roof of your property leaks, this may result in a loss of rent if the property becomes uninhabitable. Additionally, your contents, as well as those of the tenant, may get damaged.
Many insurance companies will include a clause for flat roof warranty within their cover, due to the potential risks associated with a flat roof. This clause means that for any sections which are flat, there is a minimum amount of servicing and state of repair required, with the landlord needing to have the roof checked, serviced and repaired by professionals.
Your contents do not come under buildings insurance. This means items such as chairs, desks and other unattached objects need to be covered, to protect you in the event of theft or damage.
Objects such as walls, doors and cupboards are counted under buildings insurance, as they are fixed in place.
If your tenant’s belongings are accidentally damaged, you are not responsible, with their own business insurance policy covering their contents.
Additionally, structural improvements made by your tenant (such as installing a new kitchen) need to be added to their business insurance policy, rather than being covered by yours. Despite not being able to take the improvements with them, if they were to move on to another property, the tenant does technically own them.
Not all policies cover for accidental damage, so you would need to state if you want this at the beginning of discussions, to ensure you are covered. Accidental damage means your property being damaged by something not covered under any of your other insurance policies.
Ensure you are fully aware of situations in which the policy does not cover your contents. Your insurer will be able to explain what exclusions are in place, such as natural wear and tear, as well as the maintenance work you will need to perform to satisfy their policy conditions.
Malicious damage by tenant is not always included as standard within your insurance policies, but having this helps protect you against any costs incurred from the tenant damaging the property intentionally. While you cannot guarantee your tenants will not cause malicious damage, deposits are designed to incentivise them to behave properly, so that they will receive as much of it back as possible.
If a property is not occupied, it is more at risk of break-ins, squatting, or minor crimes. Insurers will generally not cover the property as part of the landlord’s insurance policy, if it is unoccupied.
Understandably, there will be times when the property is temporarily unoccupied, such as if the property is being renovated, or there is a changeover of tenants.
Insurers will usually allow a specific period of time (normally 30 days) for the building to be unoccupied, but anything past this period will result in you needing to convert your insurance to an unoccupied property policy.
Non-payment may result in you taking someone to court, and this comes with legal fees. Although not normally a standard feature of your insurance policy, legal cover can help you with the fees, so you may wish to include legal cover as part of your insurance policy.