Commercial property – just like any other kind of property – needs the protection of suitable insurance.
The following, therefore, is a suggested guide to the key features of commercial property insurance.
Who needs commercial property insurance cover?
The type of commercial property insurance you arrange is likely to differ in some regards depending on whether you are the owner or lease-holding tenant of the premises:
- 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, warehouse 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 level 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 typically need the protection of contents insurance.
What does commercial property insurance cover?
If you have taken the plunge and entered the commercial property market, insurance is likely to become a priority in order to keep your investment safe and secure against a wide range of risks and perils.
Since this is going to be an ongoing cost, it might help to look at just what needs to be covered and how you might save money on the commercial property insurance you arrange.
Commercial property insurance safeguards a wide range of risks associated with your ownership or occupation of the premises:
- if you own it, your investment has been in the purchase of the commercial property itself – the structure and fabric of the building;
- it is this that your insurance needs to protect against a wide range of potentially serious threats, such as fire, flooding, storm damage, escape of water, smoke damage, impacts (by vehicles, aeroplanes or from falling trees and branches), vandalism and theft;
- the potential from damage is such that the entire building may be destroyed, so that any insurance cover needs to anticipate the possibility of having to rebuild it from scratch – and, when making this evaluation, it is important to remember that rebuild costs may be quite different from the price for which you bought the property or to its current market value;
- whether you own the commercial property from which to run your own business or let it to tenants, you might have a valuable amount of contents also to protect against a range of threats and perils – these contents need to be carefully evaluated, to ensure that you avoid the twin pitfalls of over- or underinsurance;
Property owner’s liability
- your public liability as the commercial property owner – or, indeed, the leaseholder – is also something you may need to protect;
- if any neighbour, visitor to the premises or passing member of the public suffers an injury or has their property damaged and holds you responsible, you may face claims for very hefty compensation;
- this type of public liability cover typically provides cover for a minimum of £1 million – but might be considerably higher, depending on the type of business operated from the premises;
Landlord’s liability indemnity insurance
- 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.
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.
According to some statistics, more than half of all fires in commercial buildings are started deliberately and empty shops and other commercial premises are especially vulnerable to this threat.
Although one of the more serious threats, however, arson is not the only risk to empty or unoccupied commercial property. When it is standing empty, the property almost inevitably acts as a magnet to attract all manner of unwelcome attention from thieves, vandals, squatters and fly-tippers. The potential for damage caused by such intruders is considerable.
In addition to these external threats, an empty property is also far more vulnerable to damage caused by internal problems and incidents. When there is no one on the scene to spot a leaking tap, burst pipe, or electrical fault, for instance, and otherwise relatively routine maintenance problem might develop into a major event – with accordingly severe damage.
Asking yourself whether you need any kind of insurance generally involves weighing up the risks against the protection offered by the particular kind of insurance that may be available – as well as understanding your obligations under any mortgage you have. It may be a condition of your mortgage agreement that you have adequate cover.
Commercial empty property insurance
If you have invested a significant amount of money in the purchase of your commercial property but need to leave it temporarily unoccupied, the bare protection offered by any remaining cover is likely to be insufficient – a major disaster might still leave you without the financial wherewithal to make good considerable losses.
That is when you might need to restore the required level of protection offered by commercial empty property insurance.
The principle of this type of insurance is simple and straight forward – aiming simply to restore the level of cover you require for the premises when they are left unoccupied.
Nevertheless, it is important to get the appropriate type and level of unoccupied property insurance for your own premises and the stakes involved in getting it wrong may be costly. Therefore, you might want to draw on the expertise and experience of a specialist provider of unoccupied commercial property insurance when arranging the cover you need.
There may be any number of reasons why your commercial property is empty – you might be waiting for new tenants to move in, for example, or it might be undergoing substantial renovation and refitting. Although you may have taken the precaution of arranging unoccupied property insurance, you still have a responsibility for mitigating the risk of any loss or damage.
Some of the precautions which your insurer may require, or which might help to reduce the cost of your empty property insurance, include:
- not only the fitting of suitably secure locks on all windows and doors, but also the installation of intruder alarms and smoke detectors;
- utilities – gas, electric and water – may need to be turned off completely, and, depending on the nature of the commercial property concerned, locked in that off position. However, it may also be a condition of your insurance that an ambient temperature is maintained in the property when unoccupied to prevent frozen pipes – check with your insurer;
- another exception might be made for any sprinkler system installed in the property, when the water for that needs to kept on – again, check with your insurer;
- manufacturers Secure Site also recommend the fitting of steel blinds to windows and the installation of steel security doors;
- insurers are also likely to insist on the regular inspection of the empty premises – at intervals depending on the nature of the property concerned, but with a written log kept of each inspection visit.
Saving money on these elements of insurance
If you want to save money on commercial property insurance – or, indeed, commercial empty property insurance – a careful comparison is needed between the many competing products on the market. Your quest for cheaper insurance cover, therefore, might be furthered by:
- as with the purchase of practically any goods or services, you may want to use all of the resources at your disposal to shop around, compare commercial property insurance products and their prices;
- the cheapest price is not everything, of course, since you need to ensure that the policy you choose provides the protection your particular commercial property requires – your objective is more likely to involve finding good value for money at a competitive price;
Tailoring the cover
- to secure that good value for money, you may need to tailor the insurance cover to suit your particular needs;
- some risks may be more important than others in your individual case, whilst others might pose less of a threat – both subsidence and flooding are risks which typically attract relatively high premiums, for example, so if you are able to do without such cover, you may significantly reduce the cost of your premiums;
- matching your particular, individual needs for commercial property insurance with the most suitable product from a huge range of possibilities is no mean achievement;
- to ensure that you get the closest fit possible, you might want to draw on the expertise and experience of specialists in the provision of this kind of insurance;
- the more you demonstrate your own responsibility for minimising the risks to your property, the more favourably is any insurer likely to view your proposal for cover – and charge an accordingly reduced premium;
- this is likely to be reflected in the measures you take to improve the physical security of the premises against theft, break-ins and vandalism and in the early warning systems you are able to install – such as smoke detectors and fire alarms, intruder alarms and regular maintenance inspections;
- to help manage the cash flow of your business, it might be tempting to pay for essential insurance cover as you go – through monthly instalments;
- in some cases, this may prove an expensive way of purchasing the cover, however, and you are likely to achieve significant savings by paying for your insurance through a single annual transaction.
By carefully considering just what needs to be covered and how you might save money on the purchase of that cover, you may succeed in securing good value for money from your commercial property insurance.