Commercial Property Insurance
A commercial property is underwritten on what the tenant does inside it. The same building let to a firm of accountants and to a spray paint shop is two completely different risks, and the trade of the occupier is an important factor in the premium and terms, the conditions and sometimes whether an insurer is willing to quote.
Most commercial lettings are on a full repairing and insuring lease, which leaves the owner to arrange the buildings insurance and recover the premium from the tenant. That makes the owner the insured even though they are rarely on site, so the policy has to work with information the owner gets second hand.
Loss of rent cover can be an important part of protecting rental income following a major insured loss. Reinstating a commercial building takes longer than a house, planning and building control can add months, and the tenant will often have a right to terminate if the premises cannot be used beyond a stated period.
We can advise owners and their agents on how a let commercial building should be insured, what the lease obliges you to arrange, and where the tenant's trade needs terms the standard market will not offer.
Common claims and risk exposures
The exposures that produce claims in this trade, rather than a generic list.
The tenant's trade, not the building
Underwriters rate a commercial property largely on the occupancy. Cooking, spraying, woodworking, battery charging and anything involving heat or solvents move a building into a different bracket, and a change of tenant can change the risk overnight without the owner thinking to mention it.
Loss of rent over a long reinstatement
A commercial rebuild often takes months rather than weeks. Demolition, planning, building regulations and a tender process all sit in front of the works, and an indemnity period set at twelve months for a building that will realistically take two years leaves the owner carrying the rest.
Periods between lettings
Commercial voids are longer than residential ones. An empty unit attracts squatters, metal theft, vandalism and escape of water from a system nobody is monitoring, and it is exactly when the unoccupancy conditions have narrowed cover to fire and little else.
Tenant failure and dilapidations
When a tenant fails, the owner inherits an empty building, an unpaid service charge and often a dilapidations dispute. Insurance does not answer the covenant risk, but it does have to respond to a building that has just become unoccupied without notice.
Liability for the parts you retain
Roofs, structure, car parks, service yards and common areas usually remain the owner's responsibility under a commercial lease. Injury in a poorly lit service yard or from a failing roller shutter is the owner's claim rather than the occupier's.
The cover we arrange
We arrange insurance around the property, its use, construction, occupancy and ownership structure. The cover available will depend on the individual risk and the terms offered by insurers.
Buildings
The structure on a reinstatement basis, including professional fees, debris removal and the cost of meeting current building regulations when rebuilding, which on an older commercial building can be a significant addition.
- Rebuild cost including fees and debris removal
- Compliance with current building regulations
- Landlord's fixtures, fittings and plant
- External works, yards and boundary treatments
Property owners liability
Injury or damage arising from ownership of the building and the parts the lease leaves with you. £5m is the usual starting point for commercial property and larger estates are commonly written at £10m.
- Injury in retained and common areas
- Damage to neighbouring property
- Limits typically £5m or £10m
- Defence costs included
Loss of rent
Rent you cannot collect while the building cannot be occupied following an insured loss. The indemnity period is the decision that matters: twelve, twenty four or thirty six months, set against how long this particular building would realistically take to replace.
- Rent lost during reinstatement
- Indemnity period of 12, 24 or 36 months
- Service charge income where insured
- Consider planning and tender time
Terrorism
Excluded from the standard commercial policy and bought back separately. Lenders commonly require it, and on a multi let estate the cost is usually recovered through the service charge like the main premium.
- Excluded as standard
- Frequently a lender requirement
- Rated on location and sum insured
- Recoverable through the service charge
Engineering inspection
Lifts, hoists, pressure systems and lifting equipment in a let building require statutory thorough examination. The duty usually sits with whoever has control of the plant, which the lease decides.
- Statutory inspection of lifts and plant
- Duty follows control under the lease
- Separate from damage cover
- Reports retained for evidence
What an underwriter will ask
Having these to hand shortens the process considerably, and usually improves the terms.
- The tenant's trade, in detail, and any processes involving heat, solvents or dust
- Rebuild cost, construction, age and roof type, including any composite panels
- Lease structure: full repairing and insuring, internal repairing, and who insures what
- Rent receivable and the indemnity period sought for loss of rent
- Whether any part of the building is currently unoccupied, and for how long
- Fire protection: alarms, sprinklers, extinguishers and their maintenance
- Security: intruder alarm, shutters, fencing, lighting and whether it is monitored
- Flood and subsidence exposure at the address, and claims over the last five years
What affects the cost of your insurance?
The main factors insurers consider when assessing the premium.
The occupier's trade
One of the most significant factors. Low hazard office or professional occupation is rated most keenly; food, heat, solvents, woodworking and waste push the rate up sharply and reduce the number of insurers prepared to write it.
Construction and roof
Brick and concrete under a non combustible roof rates better than steel frame clad in composite panels. Where panels contain a combustible core, the market narrows and the premium reflects it regardless of the occupier.
Indemnity period chosen
Extending loss of rent from twelve to twenty four or thirty six months costs relatively little against what it protects, and on a building that would be slow to replace it is usually the better value part of the policy.
Voids and claims
A history of empty units, or of theft and vandalism during them, is rated harder than a single large loss. Insurers read frequency as a statement about how the estate is managed.
Conditions and exclusions to consider
Terms vary between insurers, so treat these as the questions to ask rather than a description of any one policy.
The unoccupancy condition
Once a unit is empty beyond the stated period, usually thirty or forty five days, cover narrows to a restricted set of perils. On commercial property this bites often, because voids are normal and can run for months between lettings.
Trade processes not disclosed
Where a tenant carries on a process the insurer was not told about, the position can be that the risk written is not the risk that exists. Spraying, cooking and heat work are the usual culprits, and a sublet or a change of use is the usual route in.
Tenant's stock, contents and improvements
The owner's policy covers the structure and the landlord's fixtures. The tenant insures their own stock, contents and any fit out they installed, and the lease rather than the policy decides where that boundary falls.
Wear, tear and gradual causes
Failing flat roofs, perished seals and long running leaks are repairs rather than insured damage. On older commercial stock this is a common reason a water damage claim is reduced.
Common questions
Who insures a commercial building, the owner or the tenant?
Typically the owner, who then recovers the premium from the tenant under a full repairing and insuring lease. The tenant separately insures their own stock, contents, fit out and their business interruption. The lease is what settles it rather than any market convention.
How long should the loss of rent indemnity period be?
Long enough to demolish, obtain planning and building regulations approval, tender, rebuild and re-let. Twelve months is rarely realistic for anything but a simple unit; twenty four or thirty six is common on larger or older buildings.
What happens if my tenant changes their trade?
Tell the insurer. The rate is built on the occupancy, so a change from storage to food production, or a sublet to a different trade, can change the terms materially. Finding out at claim stage that the building was being used for something else is the position to avoid.
Is terrorism cover necessary?
It is not compulsory, but it is excluded from the standard policy and many lenders require it as a condition of the loan. On a multi let building the cost is usually recovered through the service charge in the same way as the buildings premium.
How do I get a quote from True Risk Solutions?
Call 01304 262880 and speak to a broker, or email info@truerisksolutions.co.uk with what you do, what you need cover for and a phone number with the best time to call, and a broker will call you back. We need a phone number to quote, because the cover and the price depend on questions that are quicker to answer on a call than by email.
Related trades
Speak to a specialist who understands your industry
Tell us about your business and the work you undertake, and we will come back to you with cover options built around it. Call 01304 262880, or email us with a phone number and the best time to call and a broker will ring you back.