When you are thinking of entering into a commercial lease, insurance is one of the main considerations for both parties. But what exactly does insurance cover and what happens if you need to claim on the insurance?
As with any property, it is vital to obtain buildings insurance for commercial properties. The lease will usually contain terms to ensure that the property is correctly insured. Each lease will vary, and how the insurance provision works normally depends on the type of property involved.
Whole of the property
If the tenant is leasing the whole of the property (and particularly if the property is a standalone unit from any other properties the landlord owns), the insurance provision should be relatively straightforward. Either the tenant or the landlord will insure the entire building. Even if the landlord insures, in most circumstances he will pass the cost of the premiums on to the tenant.
Part of the property
If the tenant is leasing only part of a property, for example a floor of an office building or a shop with the landlord owning flats above the shop, the parties’ concerns will be different. In these cases, different people occupy different sections of the building. It is essential that the entire building is insured, to give peace of mind to landlord and tenants alike.
The simplest way to do this is for the Landlord to insure the whole building himself, and then charge a proportion of the premium to the individual tenants as appropriate. The lease will set out how much each tenant pays. For example, the lease of a shop underneath a residential flat may require the tenant to pay 50% of the premium for insuring the building.
An alternative is for the landlord to charge a service charge which covers the repair and insurance of the property. This may be used, for example, where the landlord lets out each floor of an office block to different tenants.
Other insurance policies
Even though the building is insured, the insurance is not likely to include contents. However, some items, if they are the landlord’s, may be included in the buildings insurance. It is likely that the tenant will want to separately insure its own contents.
Tenants may also need to consider separate plate glass insurance to cover the windows of the property.
Depending on the tenant’s use of the property, he may also need to take out public and employers’ liability insurance. Public liability insurance will cover injuries to visitors and damage to their belongings. Employers’ liability insurance covers illness and injury to people working in the property and is compulsory for employers.
Claiming on the policy
If a claim is made, it is vital that the buildings insurance policy covers the whole building. The insurance clause of the lease should deal with reinstating the property should there be major damage to it. Usually, if the landlord insures the property and makes a claim, there is an obligation for him to put any proceeds of insurance towards repairing the property. The lease may also provide for suspension of rent in situations where the property has been so damaged that it cannot be occupied.