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When you lease a commercial property or own property that you rent out or run your business from, there are many issues to consider. For example, ensuring that the commercial lease protects your interest in the property. If you are a commercial tenant or property owner, one point you must understand is about commercial property insurance. You need to know what it may protect you against to ensure you take adequate commercial building insurance to cover you in specific situations. Also, if your business grows, you may need to change your commercial property insurance coverage. This article will explain four key points about commercial property insurance in the UK.
What is Commercial Property Insurance?
Commercial property insurance is a type of insurance policy that protects commercial buildings such as the one you may lease or rent out. It is a place to protect the finances of both a property owner, such as a landlord, and a commercial tenant. It can pay for costs to you, for example, for:
- repairs to the commercial building;
- rebuilding the property; and
- replacing the contents in the commercial premises.
Taking out this type of insurance is not a legal requirement for building owners or occupiers. However, it is sensible to take out a policy to protect your interests.
Below we explain four key points that relate to the utility of commercial property insurance for both landlords and tenants, what the insurance does and does not cover, and what additional protections can be conferred by this insurance product.
1. Typical Risks Protected by Commercial Property Insurance
If you have commercial property insurance in place for your commercial property, there are several things it may protect against. The risks relevant to your commercial property may depend on what type of building it is and its features. For example, if the building has a complex heating system, this may affect the commercial property insurance. Also, the use of the building may affect it. Commercial property includes, for example:
- an office;
- a high street shop;
- a restaurant in a shopping centre; or
- a shop on a farm in a rural area.
Typical risks include, for example:
- theft of items on the property;
- flooding, such as from burst pipes;
- damage due to a storm;
- trees falling onto the property;
- an explosion; or
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2. What is Not Protected by Commercial Property Insurance
Whilst it is essential to know what your commercial property insurance may protect, it is also necessary to understand what it does not safeguard against. This is particularly the case for commercial landlords and businesses which own their property. This is because your insurance will protect the building itself. However, this insurance product will not cover:
- your property if it is unoccupied, usually for more than 30 days;
- property wear and tear;
- damage due to not maintaining the property adequately;
- damage due to poor craftsmanship;
- acts of terrorism and war; and
- animal damage, such as pest infestation.
3. Parties’ Interests
Whilst commercial property insurance is relevant to both landlords and commercial tenants, each typically has different interests associated with it. If you are a landlord or own the building and use it as your commercial premises, you need insurance for:
- the building;
- any contents in the property that are yours rather than any commercial tenant’s property; and
- claims a member of the public may make when on your property, which is the property owner’s liability part of the insurance.
As a commercial landlord, you may want your tenant to pay all or some of the cost of your commercial property insurance. This is a common request amongst landlords.
If you are a commercial tenant, your interest in commercial property insurance is usually just for your contents on the premises. This may include your:
- equipment such as computers and desks;
- stock that you store; and
- any fixtures and fittings.
4. Additional Protections
It is possible to add extra protections for other risks to the commercial premises when you take out this type of insurance. There are some particularly relevant to commercial landlords. These include, for example:
- cover to protect a landlord for their tenant’s non-payment of rent;
- legal expenses to cover where a landlord and tenant dispute arises;
- cover to protect their tenant for loss of earnings if they suddenly cannot carry out their business from the property; or
- malicious damage cover in case tenants purposely damage the property.
This cheat sheet outlines what you should be aware of in your lease agreement.
Whether you own a commercial building or rent one for your business premises, whilst it is not a legal requirement, you will likely take out commercial property insurance. This building insurance will protect you against particular risks to the building and its contents. This article has explained four essential points about this insurance product to help you understand it. It firstly considers what risks it may protect you against, such as fire and theft. The article then explains what this insurance product will not protect against. A third point the article looks at is the interest in insurance, particularly to each party in a commercial lease. The article ends with a vital point about additional protections you may want to add when you take out this type of insurance.
If you need help understanding what commercial property insurance does and does not cover, contact our experienced leasing lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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