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There are many things to consider when entering a commercial lease as a commercial tenant. One key point is the commercial property insurance you may need under a commercial lease in the UK. To help you decide what you need, it is essential to consider why you may need it. This article will explain why tenants need commercial property insurance under a commercial lease in the UK.
What is Insurance?
It is helpful to first briefly think about what insurance is to understand its essential role in a business. This will help you understand why you need insurance under a commercial lease in the UK.
When you purchase insurance, you buy a financial product from an insurance company. This provides a safeguard for your business in terms of any potential risk of:
- damage;
- theft; or
- loss.
Purchasing insurance means that you buy an insurance policy from an insurer. You do this by making regular payments at agreed intervals, which the insurer refers to as premiums. You make these so that if one of the above risks occurs, your insurer can pay out for this.
Why Does My Business Need Insurance?
To understand why you need insurance under a commercial lease in the UK, you need to know what types of insurance are available and may apply to your business. Whilst many insurances may be relevant to you because you have a business, this article will focus on those which relate more to your commercial lease. As a business owner with a commercial lease, you must have the relevant insurance applicable to your business under a commercial lease in the UK to protect your business interests.
Buildings Insurance
As a commercial tenant, it is unlikely that you will need building insurance for the commercial premises you lease, as this will be the landlord’s responsibility. However, you will likely pay your landlord for this through insurance rent.
If your commercial demise for your lease is an entire building on a long lease term, you may need to insure the whole building through building insurance. Where this occurs, the insurance will likely be in both your and your commercial landlord’s names.
You may need building insurance because of the effect any damage or destruction of the building will have on your commercial lease and business. This could make the building unfit for your business purpose as your commercial premises, which will affect business productivity.
Contents Insurance
As a commercial tenant in the UK, you will need to take out contents insurance. This protects your business from theft and any losses and damages that could arise through, for example, a flood or fire.
It would help if you had contents insurance under your commercial lease in the UK because your business may require essential items for day-to-day progress. For example:
- computers;
- furniture; or
- machinery.
If you lose these, you will need to replace them immediately. However, you may need more money to do so. In addition, businesses are unpredictable, and things may crop up that cause problems for your business, such as a business interruption or a legal issue. Therefore, you may request that your contents insurance include cover for legal expenses and disruption for your business.
Tenants Improvement Insurance
During your commercial lease, you may improve your commercial premises. This could include, for example:
- installing electrical wiring;
- providing better lighting;
- the installation of air conditioning; or
- improving telecommunications.
If you make improvements as a tenant, it is a good idea to remove tenants’ improvement insurance to protect them unless your landlord is willing to add them to their business insurance.
You may choose tenant improvement insurance if you have invested money and time in improving your landlord’s property and your time in the property as your business premises. Unfortunately, if your landlord’s commercial property were destroyed, their building insurance may not cover your improvement. This is because it will usually only protect the property for how it was before you and your landlord began the commercial lease.
This cheat sheet outlines what you should be aware of in your lease agreement.
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Key Takeaways
You will likely need insurance as a business owner with a commercial lease to provide your business premises. Whilst there are many different types of business insurance, three main types may apply concerning your commercial lease. These are:
- building insurance;
- contents insurance; and
- tenant improvement insurance.
There are good reasons why a commercial tenant like you will need these types of insurance in a commercial lease in the UK.
If you need help understanding why you may need insurance under a commercial lease in the UK, our experienced leasing lawyers can assist 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. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Many different types of insurance may apply to tenants in a commercial lease. However, one type of insurance under a commercial lease includes tenant improvements insurance.
A commercial tenant needs insurance under a commercial lease in the UK for many reasons. For example, contents insurance can provide legal help if their business encounters an unexpected problem.
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