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Ultimate Commercial Property Insurance Guide
If you own commercial property that is used for business (i.e., your business or a tenant's), commercial building insurance should be a priority to protect you and your valuable asset. A commercial building policy can protect against risks like fire, flood and theft, covering repair or rebuild costs in case disaster strikes. Here's what you need to know, including common exclusions and who needs it.
What is Commercial Building Insurance?
Commercial buildings insurance protects your business premises against damage and destruction. It can cover small shops, business office buildings and restaurants to large conference centres, arenas and stadiums—and everything in between. Buildings insurance covers damage from perils like fire, flood and damage from theft that can cost tens of thousands or even hundreds of thousands of pounds to make right.
Buildings insurance is considered to be a critical component of commercial property insurance coverage, because without a policy in place, the building owner would be solely responsible for covering costs to rebuild or repair.
Commercial Buildings Insurance Examples
- A kitchen fire damages a restaurant, requiring extensive repairs to the building.
- Freezing temperatures cause a pipe to burst, resulting in a flood that damages the floors of a commercial property.
- During an attempted theft, burglars cause severe damage to a door and multiple windows, requiring them to be replaced.
- A customer trips on a broken door threshold, injuring themselves, and you are found liable for compensation.
What does Commercial Building Insurance Cover?
Business buildings insurance covers the cost to replace or repair damage to your actual building, items fixed to it and the premises. Here is a list of items commonly covered on a commercial buildings insurance policy. Note that a commercial buildings policy doesn't cover the items that you would take with you if you moved (e.g., contents like computers and stock)—those would be covered by contents insurance.
- Permanent fixtures and fittings (e.g., baths, fitted kitchens, wooden or tile flooring, etc.)
- Car parks
Perils Typically Covered
What does a commercial buildings policy typically protect against? Policies may be written on an "all risk" or "certain risks" basis. An all risks policy does what it says and covers all risks, except those specifically excluded by the terms. On the other hand, a certain risks policy will specify the perils that are covered—it won't cover risks not spelled out in the policy wording.
Most policies in the UK are written on a certain risks basis. While terms and conditions vary by insurer, it's common for the following types of scenarios to be covered by a business buildings insurance policy in the UK—subject to conditions, of course:
- Civil commotion
- Escape of water
- Malicious damage
Commercial Property Liability Insurance
One often overlooked component of buildings insurance for a commercial property owner is liability insurance. This may be included for free in some policies, while other policies might require you to pay an extra premium—but either way it can protect against claims of injury or property damage made by third parties. (In this respect, building owner liability operates similar to a public liability coverage). If someone visiting your premises is injured and it's claimed that the building owner is to blame, you could be sued for negligence.
For example, if you own a salon or a pub you could be at risk of a customer slipping and falling on a wet floor (e.g., due to spilled water from a pedicure or a spilled drink) and suing you. In these cases it's critical to have liability insurance in addition to your property insurance.
Who Needs Commercial Building Insurance?
Commercial buildings insurance might not be a legal requirement for commercial property owners in the UK, but going without can be extremely risky—repair or rebuild costs can reach into the tens or hundreds of thousands of pounds, depending on the damage and underlaying value of your building. And if you have a mortgage on your property, it's likely that you'll be required by the terms of the mortgage to have a commercial buildings policy in place.
Commercial property insurance is designed for both those insuring their own business premises, and also for commercial landlords who rent out commercial premises to other businesses.
But in the case of a leased property, who buys building insurance—the building owner or tenant? The owner of a commercial building would buy business buildings insurance—a tenant is not ultimately responsible for the building, and therefore does not need to buy buildings cover.
Imagine a scenario where a commercial property burns down—the tenant can walk away and find another premises, and the owner is left to fund the rebuilding costs of the building. However, if you lease your building premises you are responsible for insuring your business contents like office equipment and stock against damage or theft.
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What Types of Commercial Buildings Are Covered?
Commercial building insurance can cover property used for a wide variety of uses, such as:
- Block of Flats
- Business Premises
- Café Insurance
- Caravan Park and Campsite
- Care home
- Church and Religious Building
- Commercial Building
- Commercial Property Owners
- Distribution centre
- DSS Landlord
- Fish and Chip Shop
- HMO Landlord
- Home Business
- Hotel and Guesthouse
- Industrial property
- Landlord Buildings
- Landlord Contents
- Medical centre
- Multi Property Landlord
- Shopping centre
- Sports bars
- Sports facility
- Wine bars
It can cover buildings made of unusual materials (e.g., steel construction) and flat roofs, although costs may increase for very large buildings.
What About Commercial Building Insurance for Landlords?
Commercial landlord building insurance is designed for property owners who rent out their properties for commercial use, or who have a portfolio of both commercial and residential properties. Landlords who only own and rent out residential properties need slightly different insurance.
As with all insurance policies, commercial building insurance won't cover everything and each policy will be subject to its own set of terms and conditions. For example, commercial buildings policies will not cover maintenance and repairs or damage due to wear and tear. While conditions will vary, here are some common exclusions to be aware of with commercial building insurance:
- If you do not maintain minimum levels of security (e.g., you cannot alter door or window locks, or your alarm, without written consent from your insurer)
- Maintenance and repairs
- Damage due to wear and tear
- Computers and data
- Corrosion, dampness, dryness, wet or dry rot, vermin, insects
- Contents of a business premises
- Flood or other weather-related damage to boundary walls, gates and fences
- Escape of water, riot or other disturbance and forcible theft or attempted theft if property is unoccupied
- Lost revenues due to physical damage to a commercial property (for that, see business interruption insurance)
What to look for in a policy
Features and perks will vary by insurer, so if you're currently getting commercial buildings insurance quotes then be aware that the following features are desirable and can be found on policies in the UK marketplace:
- Glass replacement helpline
- Legal and tax advice helpline
- Emergency helpline
Also, be sure to check your excess to make sure it is affordable given your financial situation.
What About Vacant Commercial Building Insurance?
Unoccupied commercial buildings will have slightly different coverage under a normal commercials buildings policy than an occupied building. Why? Empty buildings may be more at risk of break ins or damage due to flooding—for example, a burst pipe in a vacant building could go unnoticed for days or even weeks, leading to greater damage and a higher claim.
As a result, insurance for a vacant commercial building is typically harder to source. the coverage will be restricted and the security requirements might be more rigorous. For example, here is a list of what might not be covered for an empty building:
- Escape of water from a pipe or tank due to freezing
- Riots, civil commotion, strikers, locked-out workers, labour disturbances and malicious people
- Theft or attempted theft
Commercial tenants do not pay building insurance, the property owner pays for building insurance. However, commercial tenants are responsible for buying their own commercial contents insurance.
Depending on the situation, your regular home insurance might not offer the cover you need. Be sure to get in touch with your existing provider to see if they can cover you—if so, your premium might rise. If they can't, you may need to look elsewhere for buildings cover to protect a home-based business.
The cost of commercial building insurance varies depending on factors like the rebuild cost and even the type of business that occupies your property. You can see some examples of commercial building insurance costs here.
Commercial property owners might also want to invest in business interruption or event cancellation insurance, depending on the type of business that's run out of the property. Take Wimbledon Tennis—in addition to their buildings cover Wimbledon has been paying for event cancellation insurance since 2003. They claimed on this policy in 2020 when the annual tennis tournament was cancelled due to COVID-19, yielding a £114 million insurance payout. Football stadiums and other sporting venues, music venues, conference centres and more could similarly benefit from event cancellation insurance to make up for lost sales.