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What is commercial property insurance?
Commercial property insurance is a package of coverages meant to protect a commercial property owner from certain financial losses related to their property ownership.
For landlords or business owner-occupiers, basic commercial property insurance typically covers physical damage to the property itself (e.g., buildings insurance and/or contents insurance) as well as liability claims if someone is injured on the property or someone else's property is damaged (via property owners' liability cover). For renters, commercial property insurance typically starts with contents insurance to protect the equipment, stock, and other items and goods owned by a business.
But there are additional coverages that can be added onto a policy for both commercial building owners and renters—what makes up a policy can vary from provider to provider, and different options can usually be added to customise a policy to cover the specific risks faced by the policyholder.
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What can commercial property insurance cover?
- Buildings insurance
- Contents insurance
- Property Owners' insurance
- Accidental damage
- Tenant's improvements
- Loss of rent
- Rent guarantee
- Malicious damage by tenants
- Legal cover
- Business interruption
- and more
Who might need commercial property insurance?
- Commercial property owner-occupiers
- Property owners who rent out their properties to other businesses
- Renters (but they won't need buildings cover—that's the landlord's responsibility)
Is commercial property insurance required?
- Commercial property insurance is not a legal requirement, but it would be required for a mortgage. Commercial property insurance is critical for protecting valuable assets and for certain other claims.
Below we explain what the different types of commercial property coverage mean. If you have time and want to learn more about what they coverages protect against and further insights into commercial property insurance, keep reading.
Commercial property building insurance
Commercial building insurance protects a commercially-used property against damage and destruction such as from fire, flood and damage from theft that can cost tens of thousands or even hundreds of thousands of pounds or more to make right. It can cover small shops, business office buildings, restaurants, warehouses, conference centres and everything in between.
The property owner is responsible for arranging and buying buildings insurance on a commercial property—even if the property is rented out to a tenant. In the case of a leased property, the renter might need to pay all or part of the building insurance premium as spelled out in the lease contract. Both tenant and landlord will each need to consider their own needs for public liability (property owners' liability for the building owner) and contents insurance.
Commercial property owners' liability insurance
Property owners' liability insurance protects a property owner if a tenant, visitor or other member of the public is injured or their property damaged while on or due to the property. For example, if a tenant falls on a broken tile they could sue the property owner for negligence in not fixing the tile. Or if a roof tile falls and damages a nearby car, the car owner could sue the property owner for damages.
Any owner of a commercial property should have liability insurance to protect against these types of situation. This holds whether the property is rented out to a tenant or a business is owner-occupier of their business premises.
Rent guarantee insurance essentially provides a guarantee that you'll get your rent payments, even if your tenant is unable to pay. It can be quite expensive, especially in the current environment.
Loss of Rental Income
Loss of rental income insurance essentially covers lost monthly rent payments if your rental property is damaged unexpectedly (e.g., in a fire or flood) and you're unable to rent it out as a result.
A tenant who makes structural improvements to a property such as installing a bathroom or decorating with new floor tiles should ensure these investments are protected via tenant's improvements insurance.
Business interruption insurance (also known as 'business income insurance') covers lost income or extra working costs if a covered disaster leaves you unable to trade. Covered events will vary by policy but can include a fire, flood, storm or essential equipment breakdown.
Accidental damage can cover events that are not protected under the covered perils in a buildings or contents policy. For example, if a tenant drills a shelf onto the wall and accidentally bursts a water pipe in the process. Accidental damage is sometimes included as standard, but often (especially on cheaper policies) the policyholder will need to pay an extra premium to get this cover.
Malicious damage by tenants
Property owners who rent out a commercial property to a tenant can consider adding malicious damage as well. This covers costs to repair damage if a tenant causes malicious damage to the property. Without this cover, intentional damage by a tenant would not usually be covered because they are considered to be on the property with the landlord's permission.
Legal expenses cover
Another option extra would be legal expenses cover, which can assist with legal or tax issues like collection on an unpaid debt or an HMRC tax investigation.
Who needs commercial property insurance?
Commercial property insurance applies to three different types of policyholders:
- Owner occupiers
- Property owners who rent out their properties to other businesses
Owner occupiers would be businesses that own their own premises. These types of property owners will probably want buildings insurance, property owner liability insurance and contents insurance to start, and may also want additional features as well.
Property owners who rent out their properties to other businesses will probably look to buy buildings insurance and property owner liability insurance at a minimum. Generally speaking a tenant will be responsible for their own contents insurance; but if a building owner has invested in carpets and some laminate flooring, furniture, etc. they will want their own contents cover to protect these items. Of course there are extras to consider like rent guarantee or loss of rental income insurance, too.
Renters. Commercial property tenants don't need to buy buildings insurance (the landlord would do this) but they would want to protect their business possessions against theft, loss and damage due to covered events like a fire or flood through contents insurance.
Additional components of cover for commercial property insurance can cover other types of risks as well, such as business interruption or legal expenses.
Commercial property insurance is not a legal requirement. But it may be required by your mortgage, if you have one. And commercial property insurance is critical for protecting valuable assets and certain other claims such as liability for personal injury to a third party on your property.
What's the difference between commercial landlord insurance and residential landlord insurance?
Commercial landlord insurance covers a wider range of buildings and activities that residential landlord insurance does not cover. For example, commercial building insurance can cover barns, warehouses, steel structures, industrial properties, flat roofs, shopping centres, restaurants and more. And a commercial property insurance policy can cover buildings used for hazardous activities, housing industrial equipment and occupied by many employees.
In contrast, residential landlord insurance covers flats and houses used by a domestic tenant. Business activities are not usually allowed.
What does commercial property insurance cover?
Commercial property insurance can cover a range of potential risks, such as damage to a building, theft or damage to contents, personal injury claims made by third parties, lost rent and more. It depends on which components of cover make up the policy. Typically, commercial buildings and property owners' liability form the basis for a commercial insurance policy, but there are many other types of coverage you can add as the owner.
How much does commercial property insurance cost?
Commercial property insurance will typically be more expensive than domestic property insurance. This is because commercial properties can be used for more dangerous activities (e.g., a warehouse or industrial unit) and can have more exposure to members of the public (e.g., a restaurant or retail shop). Also, commercial properties can house complicated heating and electrical systems, which could be very expensive to repair or replace in case of a claim.
Commercial property insurance costs will depend on many factors, the most important of which is probably the rebuild cost. Why? Having to pay for a rebuild is likely to be the worst case scenario for an insurer. If a commercial property is severely damaged in a fire, for instance, the insurer would be liable to pay for rebuilding the structure.
However, add-on features like contents cover, loss of rent and accidental damage can all add significantly to a premium. Ultimately, each quote will take many, many factors into account to determine the price of cover.
The owner of the property pays for building insurance on commercial property. The tenant would be responsible for insuring their possessions as well as any tenant's improvement that were made (e.g., installing a new kitchen).
Yes, you can insure an unoccupied commercial property for public liability. However, many insurers won't cover uninsured buildings so it may take some looking to find one that will. An experienced broker can help in this regard.
Commercial property insurance covers damage to a building caused by a break in or attempted break in via the buildings insurance element of cover. Theft of possessions or goods would be covered under the contents insurance party of cover, if this had been opted for as part of the commercial property insurance package. Note: theft of a tenant's things would only be covered if they had bought their own business/commercial contents insurance to protect those items.
Commercial property insurance is calculated using many factors, including but not limited to: rebuild cost, value of contents, previous claims history, location of the property, security features (e.g., fire alarms, burglary alarms, etc.), build materials, roof structure (e.g., flat roofs can be excluded, or cost extra), type of business occupying the property, etc.
No, a tenant does not need building insurance for a commercial property as this is the responsibility of the landlord. However a tenant may want other aspects of commercial property insurance such as contents insurance to protect business equipment, stock, etc. or tenant's improvements to protect any structural improvements they made to a property (e.g., adding a new bathroom or new flooring).
Essentially, yes. Commercial buildings insurance covers damage from events like a fire; commercial contents insurance covers loss or damage to possessions or goods due to events like a fire; business interruption and loss of income cover can also be triggered by a fire, if you have opted for those coverages as well.
As long , yes. Commercial buildings insurance covers damage from events like a fire; commercial contents insurance covers loss or damage to possessions or goods due to events like a fire; business interruption and loss of income cover can also be triggered by a fire, if you have opted for those coverages as well.
It depends. If the cause was down to an incident that is not a 'covered event' then no—for example, if poor workmanship leads to a roof leaking then this would typically not be covered. However, if a tree falls on a roof during a storm then a resulting leak might be covered. Ultimately, this coverage will vary depending on the terms and exclusions listed in the policy documents.
To determine how much commercial property insurance you need, the first step is to determine a rebuild cost for the property. Unfortunately the free BICS calculator is for homes and flats, not commercial properties. But you may find other building calculators available online.
Commercial property insurance quotes
You can get commercial property insurance quotes from a wide variety of sources, primarily:
- comparison sites
- direct insurers
Using a comparison site can be useful for getting multiple quotes in a short amount of time.
You can sometimes buy policies online from any of these sources. Beware of the pitfalls of buying a policy online, however, if you have questions. In that case you might prefer to speak with an agent or broker. Comparison sites might also be able to connect you with insurance providers in their panel for a phone conversation, if that's what you desire.
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