Last updated: 16/10/20
Have you made the switch from residential lettings? Or are you starting out as a landlord and looking to let commercial property?
Our straightforward guide to commercial property insurance highlights the important information you need to know about protecting your property, as well as some top tips for successful letting as a commercial landlord.
What does commercial property insurance cover?
A typical policy will cover the following:
• Buildings – usually up to a certain amount, which may not include damage caused by poor workmanship or wear and tear
• Contents – your level of cover will depend on what is outlined in the policy, but may also cover contents owned by the landlord that are kept on the premises, such as personal equipment
• Malicious damage – commercial property insurance policies can provide cover for malicious damage to the property caused by tenants
• Owner’s liability– property owner’s liability for up to a specified amount, usually between £5 million and £10 million
• Unoccupancy– commercial property insurance will usually cover a property if it’s unoccupied for a certain amount of time, normally up to 120 days. Anything after the specified date range may incur an additional cost to insure.
This is just a snapshot of what you can expect your commercial property insurance policy to include. Depending on the company you choose to insure with, the prices and covers may vary, so make sure you conduct thorough research to ensure your commercial property is fully protected.
Are there any additional covers?
Commercial property insurance covers a broad range of buildings, from small corner shops and cafés to warehouses, factories and even leisure multiplexes. That’s why it’s important to get an understanding of any additional extras you can add to your policy, so you can rest assured that your commercial empire is always protected.
Most policies will offer additional covers. We’ve included some examples below:
• Lock replacement– locking your commercial premises is vital! It’s important to consider getting lock replacement drawn up in your policy should the unfortunate happen, and your locks are damaged
• Glass damage – this may cover windows, or even internal glass structures that are vital to business functionality
• Underground services – you may require insurance for underground work, such as drainage works or rebuild. Make sure you’re protected with this as an extra
What about optional extras?
As well as additional covers, your insurance policy may also offer optional extras, which can cover contractors, workers and machinery at your premises:
• Employers’ liability – if an employee seeks compensation for an injury, this will cover you for financial loss incurred
• Works and development – cover for if you have contractual work and development in progress at your commercial property
• Terrorism– covers you in the event of destroyed property and furnishings as a result of an act of terrorism
• Engineering – you may need inspection cover if you’re liable for conducting routine machinery checks at the premises
As with any insurance policy, making sure you fully understand what’s covered is imperative - especially with the costs involved with commercial properties.
For example, if your commercial property were to flood, this could prevent your tenant from running their business effectively and impact their income as a result. Therefore, it’s going to be important to them that their landlord resolves the issue quickly - failure to do so could impact your relationship with an otherwise loyal tenant. Having the right commercial property insurance in place will ensure that you, your property and your tenants’ business is fully protected.
Tips for commercial landlords
Thinking of letting your commercial property? We’ve put together a list of helpful tips:
• Tenant research – make sure you gain a deep understanding of your potential new tenants. If they are a limited company it’s worth making sure they own assets. If not, it may be worth requesting a personal guarantee from a director to safeguard your rental income.
• State of property– if your commercial premises is currently being repaired, then you’ll need to make an agreement with your new tenants about the state of the property. This includes the state it’s in at the start of the lease, as well as how you expect it to be left when they give notice. As with any tenancy, most businesses will want formal confirmation that they won’t be held responsible for making repairs to damage they didn’t cause, so it’s a good idea to include an inventory with the tenancy agreement.
• Third party consent – do you need third party consent to let out the property? Make sure you check this before you sign any agreements with tenants. If you have a mortgage on the property, you’ll need to have dialogue with the lender to let them know that the property will be let to tenants. Equally, if there’s a superior landlord that owns the property and you are a leaseholder, they’ll also need to be informed of your intentions to let the property.
What are the responsibilities of a commercial landlord?
While many commercial landlords will look to transfer the cost of insurance to the tenant as part of a commercial lease agreement, the landlord will usually still be responsible for arranging the insurance for the building. This is actually in the landlord’s best interests, as choosing your commercial property insurance not only gives you control over the level of cover you have in place, but also allows you the opportunity to investigate and manage the claims process should you need to.
Remember, the tenant is responsible for insuring themselves against any specific commercial risks relating to their business, such as employers’ or public liability insurance.
Commercial property insurance with Endsleigh
As experts in the landlord and commercial insurance sectors, we understand the unique risks involved with both let properties and small businesses. We’ve used this knowledge to create a comprehensive commercial property insurance solution to protect the interests of both landlords and their commercial tenants, including up to 120 days unoccupancy cover and up to £10,000,000 commercial property owners’ liability.