If you are the owner of buy to let property, you might be the landlord of:
- residential let property; or
- commercial let property.
Naturally enough, residential property is occupied by private tenants making their home, whilst commercial property is occupied by business tenants with their own commercial enterprises to run – be they shops, restaurants, offices or light industry.
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 important, 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, therefore, are included in the lease between landlord and tenant.
If the same building has a number of different tenants, suggests the website Landlord Zone, individual leases might describe how the costs of insurance are apportioned – on the basis of the floor area rented in each case, for example.
What is commercial landlord insurance likely to cover?
There are a number of major 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 likely to be cover against loss or damage to the structure and fabric of the building or buildings;
- 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;
- in this respect – as in other headings of such policies – there is the possibility of underinsurance, so that the maximum amount available in any settled claim is less than the loss or damage suffered;
- the terms of the lease between landlord and tenant needs to make clear whether the one or the other is responsible for making good the gap between the total sum insured and the actual losses or damage sustained – even though the landlord may have been the party responsible for arranging the cover;
Loss of rental income
- clearly, the landlord relies upon the rent from tenants in order 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;
- public liability is likely to be an important issue both for the landlord and any tenants;
- for members of the public, visitors, suppliers or employees who suffer a personal injury or sustain loss or damage to their property, the first recourse to any claim for damages may be to the tenant responsible for conducting business on the premises;
- but the landlord might also be held negligent;
- once again, it is important, therefore, that the terms of the lease makes clear the respective responsibilities for public liability and the form of indemnity provided.
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 the way in which 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.