Just as with any other type of property, commercial property needs the protection of suitable insurance.
- if you own the building, you are likely to have invested a considerable sum in the purchase of the building, the structure and fabric of which needs to be safeguarded against some potentially very damaging events – such as fire, flooding, storm damage, lightning strikes, impacts, vandalism and theft;
- similarly, if you are using the premises for your own business purposes, you are likely to have made a significant investment in equipment, and in furnishing and fitting out your shop or office space;
- if you have invested in the property to let to tenants who are running their own businesses, you might nevertheless include a certain amount of furnishings, fittings, equipment and appliances for their use – these need the protection of contents insurance.
If you are the leaseholder, your landlord is likely to have assumed responsibility for building insurance, but the plant, equipment, furnishings and appliances used in the course of your business need the protection of contents insurance.
What level of insurance?
It is important to strike the appropriate balance between the twin errors of over- and underinsurance – which might be reason enough for consulting a specialist broker of commercial property insurance, such as ourselves here at Cover4LetProperty, for guidance and advice.
- in general terms, the total building sum insured needs to be sufficient to cover the cost of a complete rebuild in the event of a serious incident which totally destroys the commercial property;
- it is important to avoid the temptation of overinsuring your building – because you end up paying more than is necessary for the cover – and remember that reconstruction costs may have no bearing on the price you paid for the premises or for their current market value;
- to help you estimate the cost of rebuilding, you might want to refer to the website Cost Modelling, which has published current prices as at the 1st of January 2017;
- this is an area where the owners of commercial property typically tend towards underinsurance – leaving insufficient funds in the settlement of any claim to cover the cost of repairs or replacement;
- once again, therefore, a careful, accurate, and up to date evaluation needs to be made of the cost of refitting the premises and replacing or repairing damaged plant, equipment or appliances;
- more expensive contents insurance policies may offer settlement of claims on a “new for old” basis – replacing stolen, lost or damaged items at their current market value – whilst cheaper policies may restrict values after a deduction for “wear and tear”, or depreciation, since new.
Property owner’s liability
Whilst safeguarding the building and its contents might be uppermost in your mind, there is a further, equally important consideration when it comes to protecting your interests and that is indemnity for property owner’s liability.
As the property owner, you owe a particular duty of care in preventing your tenants, their visitors, neighbours or even passing members of the public from sustaining an injury or having their property damaged through some connection with your commercial property.
If someone suffers an injury or other loss and holds you negligent in that duty of care, you may be sued for damages. These may assume very substantial proportions – especially if physical injury is involved – and it is usual, therefore, for commercial property insurance to offer indemnity of £1 million, £5 million or even more.
Because of the value of installed equipment, supplies and finished goods, even the copper cables and tubes used in the construction of commercial premises, they typically attract more than their fair share of intruders, thieves and vandals. Even when one of these illegal trespassers is injured on your premises, you may be faced with a claim for damages.
Unoccupied property insurance
Your commercial property is likely to be at its most vulnerable if it is left vacant and unoccupied for longer than a month or two. You may need to check the terms and conditions of your commercial property insurance carefully, since many insurers restrict or remove cover altogether once the building has been unoccupied for a given period of time – a period which varies from one insurer to another.
This is because of the increased vulnerability to which empty commercial properties may be exposed – risks which are highlighted in guidance published by the British Security Industry Association (BSIA).
Having reviewed the exact provisions of your existing commercial property insurance, you may need to consider the importance of unoccupied property insurance in order to restore the level of protection you require for the building, its contents and your liabilities as the property owner.