As a commercial property owner (or, as is more commonly described, a [Commercial] Landlord, you’re acutely aware of how important risk mitigation is to your bottom line, to protect your income-generating assets. There is a number of potentially crippling risks associated with renting out a commercial property that you’re likely not eager to shoulder.
That’s why most landlords turn to insurance—and there is a specific insurance product designed to cover those losses.
Commercial property insurance, also known as commercial landlord insurance (CLI), or just Landlord cover, is a type of insurance that covers rental property aimed at commercial uses. It’s different in a few key ways from residential property insurance.
In this article, you’ll learn all about Landlord insurance and why you might need to consider it.
What Does Commercial Property Insurance Cover?
Three areas of coverage are typically included in a Landlord policy.
1. Loss of Rent
Any rental property is susceptible to catastrophic damage that renders it unsafe for use. The building may remain unusable for several months or even years, thereby leaving you unable to generate income. Landlord insurance typically includes loss of rent coverage that makes up for the rent you weren’t able to collect during the “indemnity period”, that is, how much lost rent you are covered for; typical indemnity periods are 12, 24, and 36 months.
If your loss of rent continues beyond this period, the insurer won’t be liable for it. Loss of rent insurance is an instrumental part of a Landlord policy and you should carefully consider the length of your indemnity period. Of course the longer indemnity period you want, the higher the premium.
2. Property Owners’ Liability
To understand property owners’ liability, it’s necessary to first be clear about what you (the property owner) are liable for. As a landlord, you’re responsible for the safety of third-party users of the building, even if these users are present in the course of business with your tenants. If the third-party user sustains injuries or losses as a result of your failure to provide safe conditions, you may be liable for those injuries.
In other words, if (say) a delivery person were to sustain injuries from slipping and knocking his or her head, you might be held liable in a compensation case.
Cover limits for this type of liability typically fall into the £1 million to £10 million range. You may need to craft a specific level of insurance based on your specific situation. For example, if your building houses students, individual claims can reach c£20m (loss of future earnings for the brightest students, if catastrophically injured on your premises)
3. Buildings Cover
To many landlords, Buildings cover is the keystone of Landlord cover. It’s the part of the policy that covers the cost of rebuilding some or all of a commercial property or repairing damage to it.
The worst-case scenario for some landlords may be a complete rebuild as a result of a catastrophic event. However, this may not be a level of coverage you need, and negotiating over the exact terms of your building insurance is an important way to arrive at a more favourable premium. Commercial building insurance cost is directly tied to the cost of re-building, not the market value of the property.
Some insurers may include clauses in the building insurance to reduce your allowable claim if you’re underinsured, known as “average”. Others may pay your claim in full, but charge you an additional premium in the future. These and other such restrictions are worth going over with an insurance advisory service to understand why and how insurers work them into policies.
Other Coverage Options
In addition to loss of rent, owners’ liability and Buildings cover, other common coverage options include:
- Landlord’s contents – This encompasses the loss or destruction of the landlord’s property in the building. The loss can be a result of natural disasters, theft, or other causes, and will or will not be covered depending on the terms of the policy. However, normal wear and tear isn’t covered by this kind of insurance. For instance, the cost of replacing parts of a commercial kitchen as a result of regular use won’t be insured.
- Accidental damage – Some types of damage aren’t covered by standard policies, such as accidental damage to glass, mirrors etc. However, you may choose to make it part of your policy, albeit Accidental Damage cover comes at substantial additional cost.
- Malicious damage – Damage caused intentionally by your tenants can also be part of your policy. However, it needs to be expressly included in the wording.
- Legal expenses cover – Should tenants refuse to vacate your property, you may need to resort to a court ruling to force them out. Legal expenses cover is an option that will cover legal costs associated with tenant enforcement and removal.
Things to Consider Before Purchasing Landlord Insurance
When you’re choosing your level of coverage and optional add-ons, consider the following factors.
Who pays for accidental damage to rental property is directly tied to the wording of the policy, as explained above. Moreover, insurers protect themselves with exclusions to the types of damage the policy covers. Make sure you understand exactly the level of coverage you’re receiving.
Unoccupied commercial property insurance is not the same as standard Landlord insurance because unoccupied properties are generally more susceptible to losses and damages. If your property remains unoccupied for an extended period, consider converting your policy to unoccupied commercial property insurance, since cover may be excluded from your original policy whilst it’s without a tenant.
Further, failing to live up to your commercial landlord responsibilities (such as statutory Health & Safety requirements) might invalidate parts of your policy. Understanding the risks associated with your specific property and insuring it accordingly is necessary in most cases.
Lastly, you shouldn’t be too eager to save on the commercial building insurance cost by under-insuring, since failing to provide adequate coverage could trigger a “condition of average” clause. These clauses can reduce the amount you’re allowed to claim (to amounts below what your policy states) if you’re insured for significantly less than the realistic cost of a rebuild.
Landlord Insurance and Your Bottom Line
Commercial property insurance is a pivotal part of renting commercial property. As a landlord, it’s your responsibility to know the types and levels of insurance you might need for each part of your property.
However, you’re also responsible for keeping an eye on the profitable operation of the property. Balancing these two can be challenging, and engaging a professional insurance advisory service is an excellent way to achieve it.
At InsuranceInspect Services, we help you tailor your insurance policy to your exact needs, reducing your insurance premiums Substantially, Safely, and Strategically.