If you own or are running a small business, with small commercial property insurance it is important to achieve appropriate alignment with the particular type of premises you occupy and the business activities carried out there.
Whether it’s an office, workshop, warehouse, studio, or something similar, be aware that an insurer is likely to assess the relevant risks somewhat differently. The way the premises are used by you or your tenants directly impacts the insurance underwriter’s policy terms and conditions.
Striving for the closest match between your use of the property and the insurer’s risk assessment, therefore, may make a good deal of sense.
In this post, we aim to identify the distinct types of cover appropriate for your particular property. Where any doubt remains, of course, you might want to consult the professionals with expertise in this field – such as us here at Cover4LetProperty.
What counts as a small commercial unit?
There is no hard and fast or legal definition of a small commercial unit. Typically, the term refers to premises used by a small business, sole trader, or small to medium-sized enterprise (SME), generally characterised by their relatively modest size and value compared with larger corporate premises and – in insurance terms – a correspondingly different risk profile.
Instead of the much larger premises occupied by logistics companies, major manufacturers, multi-let commercial buildings or mixed-use residential blocks, therefore, small business premises insurance is more likely to be appropriate for enterprises including but not limited to individual offices, workshops, studios, storage units, small warehouses, retail lockups, and starter industrial units.
Why these units need specialist commercial landlord insurance
Why is it important to match your commercial building insurance to the particular building type and its use? That is because, when they are assessing the risks, insurers look to you or your tenants’ activity within the premises as well as the size or construction of the building.
Certain business activities and operations are likely to carry greater risk than others.
There may be a greater risk of fire in a workshop, for example, than in an office. The risks within many industrial units are likely to be associated with the equipment and stock they hold.
In retail premises, one of the major concerns might be the potential for injury or property damage suffered by shoppers, customers, or suppliers.
In premises given over to widespread manual labour and activity, you and your small commercial property insurance provider may be more than usually aware of the need for indemnity against claims from employees who suffer an injury or other medical condition.
Because each business activity carries different and specific risks, it is important to tailor your business insurance cover appropriately.
What small commercial unit insurance covers
Small commercial property insurance in the UK is typically designed to help protect both your physical premises and, in some cases, the financial viability of the business you are running from it, depending on the cover selected.
Although policies will of course differ from one insurer to another and according to your particular business needs, here are some of the typical features common to many iterations of small commercial property insurance:
Buildings cover
- when you are looking for insurance for commercial units, protection of the building itself is typically a high priority;
- this aspect of the insurance cover is typically designed to safeguard the structure and fabric of the building, including its walls, roof, service installations, and fixtures;
- in common with many other forms of building insurance, the total sum insured anticipates a worst-case scenario in which the building is completely destroyed and the cost of reinstatement or reconstruction, plus professional fees, may be covered, subject to policy terms and conditions;
Property owners’ liability
- as the owner of the commercial premises, you are potentially liable for injuries or property damage suffered by third parties – suppliers, customers, visitors, neighbours, or even passing members of the public;
- small business premises insurance typically incorporates property owners’ liability indemnity – within and up to any limits prescribed in the policy’s terms and conditions;
Loss of rent
- in the event of an insured incident that leaves the property seriously damaged, your tenants’ business and its income streams are almost certain to be disrupted;
- therefore, many small commercial property insurance policies incorporate provisions for compensation of lost rental income, within and up to the limits prescribed in the policy documents (provided the loss follows an insured event covered by the policy);
Optional covers
- as the landlord of commercial units, your relationship with tenants and leaseholders is critical;
- if there are difficulties or disagreements in that relationship, legal expenses provisions may help with the cost of resolving certain disputes, subject to the terms, conditions, and acceptance criteria of the policy;
- optional cover may be available for glass (windows and displays), signage, contents you own, external fixtures, and even cover for terrorist activity – all dependent on your location, the nature of the business, and your chosen business buildings insurance provider.
Unit-specific risk breakdown
To illustrate how small commercial property insurance can be tailored to suit individual business operations, let’s examine some of the factors the typical insurer may want to consider:
- offices – physical hazards are naturally considered lower, although risks are there, in the shape of escape of water, electrical faults, and business interruption;
- workshops – may have a greater risk of fire or incidents involving machinery, especially where heat, extraction systems, or solvents are present;
- warehouses – here, a potentially heightened risk comes from theft, the storage of combustible or flammable goods, and security considerations, all of which may affect insurance premiums;
- studios – there may be a risk of loss or damage to specialist equipment and, where visitors are given access, this may increase the risk of liability.
How commercial tenant activities affect premiums
We have seen how the nature of the business activities conducted by you or your tenants shape an insurer’s assessment of the relevant risks.
It is through that assessment of risk, of course, that your insurer will determine the appropriate premium rate:
Light industrial vs administrative tenants
- where businesses are using even relatively light machinery, with the relevant materials in storage, underwriting risks can often be expected to be rated higher than office-based businesses;
- industrial unit insurance may, therefore, attract higher premiums than office landlord insurance;
Retail vs storage use
- if your tenants are running a shop or other retail outlet, the insurance risks are those related to predominantly customer-facing activities and liabilities;
- this contrasts with the much lower footfall likely to be encountered within storage units covered by your warehouse landlord insurance;
Hazard-based premium assessment
- industrial unit insurance policies, on the other hand, pay particular attention to the risks from heat sources, the presence of dangerous chemicals, machinery, possible overnight operations, and the level of security precautions – all of which help determine the price of premiums.
NOTE: It is important to inform your commercial insurance provider if tenant activities change, as this may affect cover.
Security and maintenance responsibilities for landlords
As the owner or landlord of commercial property, you have a duty to take all reasonable precautions to mitigate the risks of loss or damage.
That means ensuring appropriate security precautions, such as alarm and intruder detection systems, secure locks, and external lighting, together with rigorous maintenance of the building, especially with respect to the roof and compliance with electrical and gas safety regulations.
You may want to ensure the lease clearly sets out the extent to which these obligations are shared with any tenants of your commercial property.
In addition to routine physical security and maintenance, landlords may also need to ensure they are meeting any conditions set out in the insurance policy itself. These conditions can include requirements relating to minimum security standards, regular inspections of the premises (particularly where units are vacant or only intermittently occupied), prompt repair of defects, and accurate disclosure of tenant activities.
Failure to comply with policy terms and conditions could affect how a claim is assessed or settled.
Landlords may also have legal responsibilities depending on the nature of the premises and tenancy arrangements. These can include duties under fire safety legislation, electrical safety expectations in common parts, and wider health and safety obligations where access is provided to visitors, contractors, or members of the public. The Government website provides guidance on commercial landlords’ responsibilities and tenant-related obligations.
Making sure responsibilities are clearly defined within the lease and supported by appropriate inspection and record-keeping procedures may help demonstrate that reasonable steps have been taken to manage risk in line with both legal expectations and insurer requirements.
Further reading: Complete guide to being a commercial property landlord.
How to compare policies for small commercial properties
We have learned about matching your small commercial property insurance to the nature of the business operations conducted by you or your tenants.
In that light, you may want to check your understanding of exactly the business activities of your tenants. Your review might usefully focus on the suitability and adequacy of the bespoke insurance policy you put in place. The review is likely to highlight whether:
- liability limits are adequate for the nature of the business;
- security conditions are met;
- the prescribed limits of compensation for any loss of rental income are sufficient;
- if special restrictions to insurance cover apply while the premises are temporarily unoccupied or unused;
- excess levels; and
- the total building sum insured in the event of reconstruction or reinstatement.
Your review might underscore the benefits of comparing specialist policies designed for smaller commercial premises – an exercise for which you might want to draw on our expertise and experience here at Cover4LetProperty.
Further reading: Commercial property insurance 101 for landlords.
