If you are the owner of a buy to let property, you might be the landlord of either or both:
- residential let property; and
- commercial let property.
Naturally enough, residential property is occupied by private tenants making their home. In contrast, commercial property is occupied by business tenants with their own commercial enterprises to run – be they shops, restaurants, offices, or light industry.
Finding commercial landlord insurance that matches your exact needs may be critical for you to maximise your income and minimise your costs.
What is the difference between a commercial landlord and a residential landlord?
As the names suggest, the most significant difference between the two types of landlord relates to the purposes the property will be used for – commercial or residential. So, letting a small warehouse would make you a commercial landlord. Letting a flat would mean that you’re a residential landlord.
That difference is important because:
- the prevailing legislation governing letting is different for each type. A landlord must be sure they understand the appropriate laws affecting their commercial properties and their operations and comply accordingly;
- different landlord business insurance policies typically apply.
It might be worth noting that sometimes hybrid or mixed-use properties are involved – a shop with upstairs accommodation included, for example. Specific local authority regulations might then apply, while you might also need specialist mixed-use landlord insurance.
For present purposes, let’s restrict our discussion to commercial property insurance.
When it comes to insurance for commercial let property, one of the distinguishing features is that it is typically subject of one or more of the lease conditions.
The clarification is essential since it is customary for the owner of the let property to arrange commercial landlord insurance and to include the cost of this in a general management charge to the business tenant. The terms and provisions of the insurance cover and who pays what, are included in the lease between landlord and tenant.
If the same building has several different tenants, suggests the Royal Institute of Chartered Surveyors (RICS), individual leases might describe how the costs of the relevant service charges, including insurance, are apportioned – based on the floor area rented in each case, for example.
Why arrange insurance for commercial landlords?
Most of us want to think that our financial interests are protected by appropriate insurance.
If you’re letting a commercial property, then commercial landlord insurance should be seen as being essential. In fact, it might be contractually required by your funds or mortgage provider, if you are purchasing the property using finance.
Both your commercial landlord insurance and any loan agreements might specify restrictions in terms of tenant types and their associated commercial activities.
One such example might be tenants running a production process using dangerous chemicals or those planning to use your premises for purposes they were not designed or licensed for.
As this can be a complicated type of business insurance, using the services of a specialist provider to find the most comprehensive and cost-effective commercial property insurance required for your own unique circumstances makes sense. At Cover4LetProperty, we are more than happy to advise on these and other special circumstances.
What is covered by a typical commercial landlord insurance policy?
There are several important headings which are likely to apply both to residential and commercial lettings and some provisions appropriate only to the latter.
A specialist provider of commercial landlord insurance – such as those of us here at Cover4LetProperty – is in a position to offer greater detail about the following typical headings:
- at the heart of the insurance for commercial landlords is cover against loss or damage to the structure and fabric of the building or buildings;
- the structure and fabric of the building is protected against damage by what are known as the insured perils – these include flooding, fire or smoke damage, storms, or earthquakes;
- it is customary for the total building sum insured to reflect the worst-case scenario in which the complete premises need to be rebuilt (as well as the site being cleared beforehand);
- to arrive at an accurate cost of reconstruction – and to keep that estimate up to date – the landlord is likely to commission periodic valuations by a qualified surveyor and valuer, including the costs of such surveys in the tenants’ management charges;
- reference might also be made to the Commercial Reinstatement Tool published by the Royal Institute of Chartered Surveyors (RICS);
- any contents you own in your let commercial property may have some partial cover from your tenants’ insurance – but that may require you to prove that liability for a subsequent problem resided with them;
- the circumstances leading to the loss or destruction of your contents might be your responsibility (natural causes);
- you might also have liability in terms of the tenants’ stock and contents residing in your property, should those be damaged by say a leak caused by your failure to maintain the property appropriately;
Landlord’s liability insurance
- property owner’s or landlord’s liability insurance is there to protect you financially should someone make a claim against you for legal claims loss, damage or injury caused while in or around your business premises;
- not all policies offer the same levels of cover against this risk. Policies arranged here at Cover4LetProperty incorporate up to £5m worth of indemnity insurance cover as standard;
Loss of rental income
- clearly, the landlord relies upon the rent from tenants to sustain his business;
- if a major insured event leaves the premises unusable by the business tenants, the lease might provide for the suspension of rent or the termination of the tenancy;
- in either event, of course, the landlord is likely to look to insurance providing compensation for any such loss of rental income;
- meanwhile, the tenants, too, are likely to seek compensation for the disruption to their trading activities and may want to be involved in the scheduling of repairs to the property and priorities for spending any insurance settlement;
Unoccupied property insurance commercial
- making sure that you have empty or unoccupied property insurance may be particularly crucial for your commercial property;
- an empty property is one that typically stands untenanted for a period of 30-45 consecutive days or more (the period may vary depending on which insurer your current policy is with);
- you may also need to find a commercial landlord insurance policy which can cover partially occupied premises or those where there is a mix of commercial and residential use – once again, we are happy to help field any such enquiry.
Commercial landlord insurance is a particular, specialist type of insurance which might be complicated not only by the nature of the risks it covers but also by how those risks are apportioned between landlord and business tenant. As may be clear, the terms and conditions of the lease need to spell out these respective responsibilities.
There are multiple combinations of circumstances that might materially affect your choice of business and commercial insurance for landlords. So, it is worth thinking carefully about the issues involved and consulting suitable specialist advice.
Further reading: Complete guide to being a commercial property landlord.