When renting a commercial building, it’s important to know exactly who is responsible for paying the insurance. However, there are also several types of insurance that a commercial building can acquire. Knowing which a tenant might be responsible for and which the landlord might have an insurable interest in can be the tricky part. Keep reading to gather a better understanding.

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The different types of insurance

Building insurance/commercial property insurance

One of the most important types of insurance for commercial buildings is building insurance. This is also referred to as commercial property insurance. In a nutshell, this protects the landlord against a range of risks and protects their property investment. If you’re a landlord and you are renting your building out to a third party, it is within your interests to make sure that the building is covered against damages. Once you have handed over the keys to the renter, there is a higher chance of something going wrong that is out of your control as you are no longer there to assist with the day-to-day running of your property. That’s why, although building insurance is not a legal requirement, we would strongly advise investing in it.

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Property owner's liability insurance

Property owner’s liability insurance protects the owner’s legal liabilities should a third party become injured on the property, or the building itself become damaged. For example, if a part of the building was to fall and injure a person while they were on the property, or the building itself became damaged from the debris, depending on the terms of the lease, this could be the fault of the landlord as they were supposed to maintain the building. Property owner's liability insurance will protect the landlord from this negligence. 

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Employers liability insurance

This type of insurance is used specifically when a landlord hires someone to work on the building. This could be anyone from a regular contractor to maintain the property to an electrician or plumber.

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Contents insurance

Contents insurance covers everything brought inside the building by the person renting the space. For example, if the property is rented out to a third party who uses it as an office, they will more than likely bring computers and other electronics that need protection. However, contents insurance also covers things like fixtures and fittings and any other improvements the tenant may have made to the premises. 

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Honourable mentions

The following are insurance types that are not as common as the above and are sometimes classed as add-ons to the usual insurance policies. 

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• Business interruption cover. This covers the loss of rental income following an insured event.
• Terrorism cover. This covers any events where the building has been purposely targeted and is usually requested by most mortgage advisors. 
• Legal expenses cover. This covers several legal expenses a landlord may have when renting out a commercial building, such as tax investigation, contract disputes, personal injury, and more.

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Who is responsible for covering the cost of insurance?

Landlord’s responsibilities

Typically, when it comes to insurance for a commercial building, landlords are responsible for arranging and paying the following: 

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• Commercial property insurance
• Property owner’s liability insurance
• Employers liability insurance (if they have hired someone to work on the building)

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Depending on whether they have opted to add these on, they may also cover the cost of insuring business interruption, terrorism cover, and legal expenses. 

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It is not unusual for a landlord to pass the cost of the insurance onto the renter as insurance rent. This way, the building will still have all the relevant insurance, the landlord will be in control of the insurance policies and have easy access to them in case of a claim, etc., but they will not be out of pocket. The lease agreement will detail whether the insurance rent is part of the service charge or if it is a stand-alone charge. 

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Tenant’s responsibilities

Although a landlord may pass on the cost of the building insurance and other policies to the renters, it is a tenant's sole responsibility to organise contents insurance. Depending on the amount of cover they opt for, it will protect all the items that have been brought inside the property since they became the tenant. 

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Contents insurance is not a legal requirement, but most renters of commercial properties do purchase a policy to give them peace of mind about their belongings and items the business may own that could get damaged or stolen. 

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How Lets Insure can help

Our sister platform, Lets Insure, provides free access to all the products and services you need as a landlord to effectively start and manage tenancies while also ensuring your compliance at every step! 

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Contact us today with any questions you may have, or sign up for free!

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