Commercial property insurance can be confusing at first. There’s the property owner, the tenant, the lease agreement, and sometimes even a managing agent or insurance broker involved too. But at the end of the day, there is truly only one overseer and responsible party when it comes to arranging building insurance for commercial property.
It is almost always the commercial property owner who is responsible for arranging commercial property insurance (or landlord insurance as it is also known). That’s because they are the legal owner of the building and have what’s known as an ‘insurable interest’ in the property.
That said, who pays for the insurance costs is not always quite as straightforward. Under many commercial lease agreements, the landlord arranges the building insurance policy, then recharges the cost to the tenant as part of the lease terms or service charge.
We know this can still feel like a grey area, especially if you’re a commercial landlord, a commercial tenant, or a property investor dealing with a new tenant or multiple tenants. So in this guide, we’ll explain who is responsible for arranging building insurance for commercial property, who usually pays for it, and what cover you may need to protect your property properly.
Keep reading or get in touch with Glowsure for personalised insurance advice.
Who is responsible for arranging building insurance on commercial properties?
In standard commercial lease agreements, it is common for the freeholder, landlord, or property owner to recharge the tenant for the cost of the building insurance for the part of the property they occupy (or a proportion of the cost if there are multiple tenants).
However, it remains the landlord’s responsibility to arrange the policy as the ‘Insured Party’ to ensure the cover is sufficient for their requirements and to protect their interests.
Essentially, anything that is not bolted into the design of the building, such as tenant fixtures and fittings, personal belongings, or anything that is not otherwise specified in a landlord and tenant agreement, does not fall under the building’s insurance agreement. Buildings insurance will only cover any specified damages to the building itself, which can go as far as to include any kitchens or bathrooms and malfunctions within those types of rooms.
If you are a tenant within a commercial property, you will need to get your own contents insurance and wider business insurance to protect your personal belongings and business equipment.
How does commercial property insurance work?
Commercial properties have different risks to residential properties, so they require a different policy. General cover can include protection for buildings, landlord’s contents, liability to property owners, liability to employees, and business interruption.
An insurance broker will ask questions about the building, how it is used, whether it is let, whether there are multiple tenants, and any specific risks linked to the property. This helps make sure you get the right insurance coverage and not just a one-size-fits-all policy.
A commercial property insurance claim usually starts when the property owner or named policyholder makes a claim. After this, the insurance company will review it and make a decision.
From there, the process usually looks like this:
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We gather claims information from you
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We log the insurance claim with the insurer
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We help obtain repair estimates if needed
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We gather information from any other parties involved
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We attend loss adjuster meetings where required
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We review reports and updates
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We push for a fair settlement
Generally, buildings insurance claims can be handled quickly. Liability claims usually take longer, but it all depends on the nature of any injuries and the legalities involved.
At Glowsure, we handle insurance claims for you so you’re not left chasing updates or trying to work out what happens next. You make one call to us, and we take it from there. Or you can submit a new claim notification using our form.
What do commercial landlords need to consider when getting buildings insurance?
When you’re arranging insurance on commercial property, you need cover that actually reflects the building, the lease, and the risks that come with owning it.
The best policy is one that fits your property properly, not just the cheapest one on the page.
Here are some of the key things commercial landlords should think about:
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How much it would cost to rebuild the whole property (not just the property value)
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How the building is used (different types of commercial properties have different risks)
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Whether the property is occupied or empty (empty properties can have a higher risk)
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Loss of rent and business interruption (you may lose rental income if the building is out of use)
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Liability risks (property owners’ liability insurance can protect against claims)
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Any landlord contents or communal contents (these may need insuring too)
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Getting professional advice (an insurance broker can save you hassle and money in the long run)
Are tenants responsible for buildings insurance?
The short answer is no. A commercial tenant does not have insurable interest in the actual building, so they should not arrange a building insurance policy for it. That remains the responsibility of the landlord, freeholder, or property owner.
A commercial tenant is, however, responsible for arranging their own business insurance, including cover for their own contents, stock, fixtures, fittings or anything else related to running their business.
Contents insurance is just as important as building insurance. The landlord’s policy protects the building itself, but it doesn’t usually protect the tenant’s business assets inside the premises.
Does a commercial tenant pay for buildings insurance?
Yes, but only where the terms of the lease require them to do so.
To be clear, the commercial tenant should not actually arrange the buildings insurance policy. That is still the landlord’s responsibility. But under most leases, the landlord will recharge the insurance costs to the tenant, either directly (which is called insurance rent) or through the service charge.
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For example A shop tenant rents one unit in a building with three separate occupiers. The property owner arranges the commercial building insurance for the whole building. Under the commercial lease, each tenant pays a proportion of the annual insurance premium. The tenant contributes towards the cost, but the landlord remains the insured party and the person responsible for arranging cover. |
Does a commercial tenant pay contents insurance?
Yes, a commercial tenant should arrange and pay for their own belongings and contents insurance, including any fixtures, fittings, or improvements they have added.
The key thing is to check what the lease says. Some items may remain the landlord’s responsibility, while others fall to the tenant. If in doubt, always go back to the lease or ask for professional advice.
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For example A café tenant installs counters, coffee machines, furniture, and signage in a leased unit. The landlord’s building insurance covers the structure of the building, but not the café’s contents or trade equipment. The tenant takes out their own contents and business insurance to protect those items against theft, damage, or other insured risks. |
What insurance do you need for commercial property?
The exact cover you need depends on the type of building you own and how it’s used. In most cases, insurance for commercial property can include:
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Property Damage: The reinstatement cost of the buildings for physical or accidental damage to the property.
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Loss of Rent: Typically for a 36 month indemnity period, to protect rental income if the property cannot be occupied following an insured event (fire, flood, etc.). It does not cover non-payment or periods without tenants.
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Property Owners Liability: Covers against claims made against the owner if someone suffers injury or property damage due to alleged defects in the property or maintenance issues.
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Employer’s Liability: If you employ a maintenance person to deal with your properties.
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Terrorism: Optional, or as stipulated in the lease.
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Contents: If you have landlord’s contents in the property, or communal contents in a block or shared building.
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Legal Expenses: Covers legal costs associated with property-related disputes.
Will buildings insurance cover business insurance?
Buildings insurance and business insurance are two different types of cover. However, if you own the premises and you also run your business from it, you may be able to incorporate the two elements into a combined policy, which your insurance broker can advise you about.
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Commercial buildings insurance is there to cover the building itself. If the property is damaged or destroyed, any claim settlement will be paid to the policyholder, which is the property owner, not the tenant.
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Business insurance, on the other hand, relates to specific risks or threats in connection to actual business activity and can provide cover for the cost of legal claims, repairs, lost equipment, jobs gone bad, injuries, or lost earnings, to name a few.
Contact Glowsure for commercial building insurance
At Glowsure, we strive to ensure that property owners have all of their insurance needs met with friendly and superior service. We are proud to have established a business that puts customers front and centre, and if something is not right, we fix it.
If you need commercial buildings insurance or if you just have some questions you would like answered, please contact us today on 01730 239387 or fill out our contact form for a free quote.
You may also be interested in: What insurance do you need as a landlord?
Frequently asked questions about commercial property insurance responsibilities
Does an empty commercial property need insurance?
Yes, absolutely! An empty commercial property still needs insurance. In fact, an unoccupied building can sometimes be seen as a higher risk because there is a greater chance of issues going unnoticed, such as leaks, vandalism, arson, or break-ins.
Standard commercial property insurance may not always provide the same level of cover once a property becomes vacant, so it is important to tell us as soon as the occupancy changes.
What is insured under a commercial lease?
That depends on the wording of the commercial lease agreement, which should set out who is responsible for what. In most cases, the landlord insures the structure of the building and may recharge the cost to the tenant. The tenant is then responsible for insuring their own contents.
If you are unsure, it is always worth getting advice before assuming you are covered. Contact Glowsure and we’d be happy to help.
What is ‘insurance rent’ in a commercial lease?
While a landlord must arrange insurance for commercial property, they can pass the cost on to their tenant. This is known as insurance rent. The cost can vary depending on the lease and the number of business owners within the building. If the property only has one tenant, the tenant may pay the full amount. In buildings with multiple tenants, the cost is usually split proportionately.
