Common Insurance Obligations for Tenants in a Commercial Lease Agreement UK

As a commercial tenant in the UK, your lease will outline several obligations you must comply with. These can include repairs, payments, and the use of the property. It is common for the lease to detail each party’s responsibilities regarding insurance. For instance, it specifies who is responsible for obtaining the insurance policy and how payments are shared between the parties. Tenants should be mindful of these obligations. This is because they can lead to fixed, recurring costs and may connect with your other covenants in the lease. In turn, this can impact your budget and compliance with the agreement. This article will clarify your insurance obligations as a tenant in a commercial lease agreement.

Lease Agreements  

If you are a commercial tenant, you may have a lease for your business premises. This means that your landlord allows you to occupy their property for a set period, which is the lease term, and for a specific use, for your business purposes. In return, you pay rent for the commercial premises and agree to comply with the terms of your lease.

You will enter into a commercial lease with your landlord, which sets out the roles and duties of both parties. You and the landlord must comply with these to avoid additional costs or even early termination of the lease.

The following sections will explore common insurance obligations for tenants. 

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Building Insurance  

In a commercial lease, the typical arrangement is that the landlord secures insurance for the entire building, the estate, or multiple adjoining properties. This policy safeguards the whole building and estate against specific risks usually associated with severe damage or destruction, such as fire, flooding, or storms. These risks are often listed in the lease and are defined as ‘Insured Risks’.

In this situation, the landlord will subsequently pass on a portion of the premium to you as the tenant.

They could include this as part of your annual service charge.

Contents Insurance

In addition to the landlord’s insurance policies (including the policy mentioned above and typically loss of rent coverage), you will generally need to obtain insurance for your personal and business property. This requires arranging and paying for contents insurance. 

The lease may explicitly require this, or it may simply be something you consider essential to protect your belongings. This insurance can cover:

• equipment such as computers;
• furniture you own;
• fixtures you own;
• fittings you have; and 
• any improvements you make to the commercial space.

If the lease requires it, the terms of the agreement may set out a minimum value or a type needed for the cover. 

Other Considerations

The lease may outline specific provisions regarding any alterations or improvements tenants wish to make to the property. Alongside this, there will be terms about the insurance of those improvements and the associated responsibilities. It is common for tenants to insure any non-structural changes they make to their space. This should be considered beforehand. For significant structural modifications to the building or the property, the landlord may charge an increased premium based on the lease terms. 

Another critical factor is the tenant’s repair obligations. These usually exclude anything classified as an Insured Risk. In other words, tenants are generally not responsible for repairing items categorised as Insured Risks. However, if a claim for those risks is denied or the insurer refuses payment due to actions the tenant took or failed to take, this exception will be nullified. 

Other Insurances

There are other types of insurance you may need to pay as a commercial tenant. Some of these are wider than the subject of this article as they relate to you as a business owner rather than strictly as a tenant in a commercial lease. These are, for example:

• public liability insurance; 
• professional indemnity insurance; and 
• employer liability insurance.

A policy that many tenants will need (and that often the lease requires them to obtain) is coverage for glass or plate glass. This may need to be specifically added when you are obtaining insurance quotes, so it is wise to check for it.

Key Takeaways

As a commercial tenant, you will likely have insurance obligations under your lease agreement. Generally, the arrangement and purchase of building insurance are the responsibility of your commercial landlord. As a commercial tenant, your landlord is likely to impose a lease term requiring you to contribute in some way to the building insurance. You may also have insurance obligations to obtain contents insurance for your possessions on the premises and glass cover. 

If you need help understanding your insurance obligations in a commercial lease agreement 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 for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.

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