What is the Commercial Property Insurance Coverage?
Commercial property insurance coverage is a package of policies for a business using premises to trade from or for landlords letting those premises to tenants.
Packages are for three scenarios:
- Tenants who rent out business premises.
- Landlords who let their property to businesses to operate from.
- Owner-occupiers who own the building they operate from.
While there are a number of policies that make up a commercial property package, not all are needed for every scenario above.
According to NimbleFins, a basic commercial property insurance plan will cover public liability insurance, building insurance (for a premises owner), or contents insurance (for tenants). Some landlords will also want contents insurance. Owner-occupiers will usually take out all three types of cover. Then there are additional coverages that a business may or may not choose to take on, such as rent guarantee and accidental damage.
What does commercial property insurance cover?
A brief outline of the different types of cover are set out below:
- Building insurance: For commercial property owners, not tenants. This covers the cost of repairing or replacing damage to the structure of the building and anything permanently fixed to it. It includes car parks, walls, doors, windows, and also fitted cupboards, fitted kitchens, fitted bathrooms and permanent flooring. It is a core component of commercial property insurance.
- Contents insurance: For occupiers of the building, although sometimes landlords also take out contents insurance if they have paid for high-value moveable items. This covers the value of these items if they were damaged by a number of specific factors such as fire, flood and theft. Contents insurance is a basic part on commercial property insurance.
- Public liability insurance: Protecting against compensation costs and legal costs if a member of the public, worker or other third party has property damaged or is injured and the fault lies with the property. For example, a roof tile falls onto a member of staff’s car, the cost to repair the car would be covered by this insurance. This is typical coverage for landlords and owner-occupiers as part of a commercial property insurance policy. Tenants may decide they need to take out a separate public liability policy that covers third parties’ belongings and well-being (but not staff – that’s a separate type of cover called employers’ liability).
- Legal expenses cover: Covering legal fees for many scenarios such as debt collection. This is an optional extra and is often an add-on for business insurance too.
- Rent guarantee: For landlords, this means they will receive the money owed if a tenant defaults on rent payments, for a set period of time, usually up to six or 12 months. This is an additional extra for commercial building insurance.
- Loss of rental income: For landlords, if a listed incident such as flood or fire means the workplace is not useable and tenants do not pay rent, this insurance covers the amount that the landlord would normally charge up to a certain level. This is an additional extra for commercial building insurance.
- Business interruption insurance: For tenants or owner-occupiers who lose income or have additional costs due to a listed incident at the workplace. For example, a break in and theft of stock means a big order cannot be met, and business interruption insurance would pay the lost revenue (contents insurance would pay for the value of the stock). Or a flood destroys the computer network, and this insurance would pay for the lost revenue while the business was unable to trade. This is an additional extra for commercial building insurance.
- Tenant’s improvement insurance: Covering the cost to repair work carried out by the tenant, which would be covered by building insurance if the landlord had done the work. Such as adding a new kitchen or flooring. This is an additional extra for commercial building insurance.
- Accidental damage: For landlords or owner-occupiers wanting coverage for damage caused unintentionally.
- Malicious damage by tenants: This is not usually covered as standard by commercial property insurance as the tenant is assumed to be legally on the premises. This covers criminal damage carried out intentionally by the tenant.
What is the agreed value in commercial property insurance?
Agreed value in commercial property insurance is where the policy holder and provider agree on an amount that a piece of property is worth. It can protect a policy holder from receiving less than they believe is the true value of goods lost. It also means that if an incident happens, the insurer will pay the pre-agreed amount. But because of this, it usually comes at an added cost and added administration, such as annual assessments.
High-value property, or property with specialist modifications, sometimes has agreed value.
Who should pay for building insurance on commercial property?
Building insurance on a commercial property is taken out by whoever owns the site, whether that be a landlord letting the building or an owner-occupier. However, it may be a condition of the lease that the tenant pays the building insurance premiums.
A tenant does not need to take out building insurance, but they may wish to take out business interruption cover and contents insurance. The former will cover costs and loss of income if a qualifying incident (such as fire, flood or theft) means the tenant cannot trade from the premises. Because the tenant has no say over the building insurance policy a landlord has taken out, they also do not have control over how quickly they may be able to get back inside the space. They may need to seek alternative accommodation or spend money on contingency plans such as replacement computers, and so business interruption insurance will cover these costs to keep the business operational.
Likewise, a tenant may also wish to take out contents insurance for the items inside the property should a disaster occur at the premises.