Let Property Insurance: Protecting Your Commercial Property Investment

Investing in commercial property can provide a valuable source of rental income and the potential for long-term capital growth. However, owning a property that is rented to another business also brings financial risks.

Fire, flooding, storm damage, vandalism, liability claims and periods when a damaged property cannot be rented can all have a significant financial impact on a commercial landlord.

This is where Let Property Insurance can help.

Also commonly referred to as landlord insurance, let property insurance can be arranged to protect commercial property owners against a range of risks associated with owning and renting premises.

Whether you own an office, shop, warehouse, industrial unit or another type of commercial property, having suitable insurance in place can help protect both the building and the income it generates.

What Is Let Property Insurance?

Let property insurance is designed for property owners who rent buildings or premises to tenants.

Standard home insurance is generally unsuitable for a property being used for commercial rental purposes. Commercial landlords therefore need insurance that reflects the way the building is occupied, the activities taking place within it and the risks associated with letting it to another business.

The precise cover available will depend on your insurer, property and individual policy.

A landlord renting a small retail unit will have different requirements from an investor who owns a large warehouse, office building or multi-tenanted commercial property.

What Does Let Property Insurance Cover?

Commercial let property insurance can combine several different types of protection.

Depending on the policy selected, this may include cover for the following.

Buildings Insurance

The building itself is likely to be one of your largest financial assets, making appropriate buildings insurance particularly important.

Commercial buildings insurance can provide protection against insured events such as:

• Fire
• Flood
• Storm Damage
• Escape of Water
• Vandalism
• Malicious Damage
• Subsidence, Where Included
• Certain Types of Accidental Damage

The exact risks covered will depend on the policy wording.

Buildings insurance may cover more than the main structure itself. Depending on the property and policy, fixtures, fittings, walls, gates, outbuildings and other permanent features may also need to be considered when calculating your insurance requirements.

Loss of Rental Income

If serious insured damage prevents your tenant from continuing to occupy the property, you could temporarily lose your rental income.

This can become a significant problem where rent is being used to meet mortgage repayments, maintenance costs or other financial commitments associated with the property.

Loss of rent cover may provide compensation for rental income lost following an insured incident while the property is being repaired or reinstated.

The amount and maximum period of cover can vary, so landlords should consider how long it could realistically take to repair or rebuild their property following substantial damage.

Property Owners’ Liability

Owning commercial property also brings responsibilities towards tenants, visitors and members of the public.

If somebody is injured or their property is damaged and you are found legally liable as the property owner, the resulting claim could be expensive.

Property owners’ insurance can include liability protection against certain claims arising from ownership of the premises.

For example, a claim could potentially arise from an accident associated with part of the building that you are responsible for maintaining.

Suitable liability limits should reflect the nature and use of the property and the potential risks involved.

Landlord’s Contents Insurance

Not every commercial property is rented completely empty.

If you provide furniture, appliances or other contents for tenants to use, these items may also need to be insured.

Landlord’s contents insurance can provide protection for belongings owned by you rather than by the tenant.

This distinction is important because your policy will not normally insure the tenant’s own stock, equipment, furniture or other business property.

Tenants should arrange appropriate insurance for their own possessions and business activities.

Legal Expenses

Disputes relating to commercial property can become complicated and expensive.

Optional commercial legal expenses insurance may provide assistance with certain legal costs, subject to the terms and conditions of the policy.

Depending on the insurance selected, cover may be available for specific types of disputes involving issues such as property ownership, contractual matters or tenancy arrangements.

Legal expenses insurance should not be assumed to cover every disagreement with a tenant, so it is important to understand exactly what is included.

Does Let Property Insurance Cover Tenant Damage?

This depends on the circumstances and the policy.

Some forms of malicious damage by tenants may be insurable, while gradual deterioration, wear and tear or poor maintenance will generally be treated differently.

Normal wear and tear is an expected part of owning and letting property rather than an unexpected insured event.

Landlords should therefore check whether their policy provides protection against malicious damage caused by tenants and whether any exclusions, excesses or conditions apply.

What Happens If the Property Is Unoccupied?

Commercial properties can sometimes remain empty between tenants.

An unoccupied building may represent a greater insurance risk because problems such as water leaks, vandalism, theft or fire can remain unnoticed for longer.

Many insurance policies place additional conditions on properties that remain vacant beyond a specified period.

These conditions could include requirements to:

• Inspect the Property Regularly
• Turn Off or Drain Certain Water Systems
• Maintain Appropriate Security
• Remove Waste and Combustible Materials
• Keep the Building in Good Repair
• Inform the Insurer When Occupancy Changes

If a tenant leaves and the building becomes empty, tell your insurer or insurance broker rather than assuming your existing cover will continue unchanged.

Why Is Commercial Landlord Insurance Important?

Commercial property can represent a substantial investment.

Without appropriate insurance, an unexpected event could leave the property owner responsible for considerable repair, rebuilding or legal costs.

Imagine, for example, that a serious fire makes a commercial unit unusable.

The landlord could potentially face the cost of repairing the building while simultaneously losing months of rental income.

Suitable insurance can help reduce this financial exposure.

It can also provide reassurance that you have considered some of the major risks associated with owning an income-producing property.

Do Commercial Mortgage Lenders Require Property Insurance?

If your property has been purchased using commercial finance, your lender may require suitable buildings insurance to remain in place as part of the lending agreement.

The exact requirements will depend on the mortgage provider and loan terms.

You should check your lending documents carefully and make sure any insurance you arrange complies with the conditions imposed by your lender.

Allowing required insurance to lapse could potentially put you in breach of those conditions.

How Much Should You Insure a Commercial Property For?

One of the most important considerations is the buildings sum insured.

This should not simply be based on the property’s current market value.

The amount required to rebuild a commercial property can differ considerably from the amount somebody would pay to purchase it.

Rebuilding costs may need to account for expenses such as:

• Construction Materials
• Labour
• Professional Fees
• Demolition
• Site Clearance
• Specialist Building Features
• Compliance With Current Building Regulations

Underestimating rebuilding costs could result in the property being underinsured.

If you are uncertain about an appropriate rebuilding figure, obtaining professional advice or a suitable reinstatement valuation can help.

What Affects the Cost of Let Property Insurance?

Insurance premiums for commercial property are influenced by many factors.

These can include:

• Property Type
• Rebuilding Value
• Property Age and Construction
• Location
• Flood and Subsidence Risk
• Tenant’s Business Activities
• Claims History
• Security Measures
• Occupancy Levels
• Whether the Property Is Unoccupied
• Required Liability Limits
• Additional Cover Selected

The business being operated from the premises can be particularly important.

An office, for example, may present a substantially different insurance risk from a restaurant, manufacturing business or workshop.

Always provide accurate information about your tenants and the activities carried out at the property.

What Information Will an Insurer Need?

When arranging commercial property insurance, you may be asked to provide information about both the building and its occupants.

Having the following information available can make arranging cover easier:

• Property Address
• Type of Building
• Construction Materials
• Approximate Age
• Rebuilding Value
• Current Occupancy
• Tenant’s Business Activities
• Security Arrangements
• Previous Claims
• Flooding or Subsidence History
• Whether the Property Has Any Vacant Areas
• Number of Tenants
• Required Rental Income Cover

Properties with unusual construction, high-risk tenants or previous claims may require more detailed information.

What Should Commercial Landlords Look For in a Policy?

Price is important, but it should not be the only consideration when comparing commercial landlord insurance.

A cheaper policy that leaves important risks uninsured could ultimately prove more expensive if you need to make a claim.

Consider areas such as:

• Buildings Cover
• Rebuilding Sum Insured
• Property Owners’ Liability
• Loss of Rent
• Landlord’s Contents
• Malicious Damage
• Accidental Damage
• Legal Expenses
• Unoccupied Property Conditions
• Policy Excesses
• Major Exclusions

It is also worth reviewing the policy whenever your circumstances change.

A new tenant, change of business use, major refurbishment or period of unoccupancy could alter the level or type of insurance you require.

Protecting Your Commercial Property Investment

Buying commercial property can be a long-term investment, but protecting that investment requires more than finding tenants and collecting rent.

Property damage, liability claims and unexpected interruptions to rental income can all create substantial costs.

Appropriate let property insurance can help provide financial protection against insured events and give commercial landlords greater confidence that their property investment is properly protected.

At West Craven Insurance, we can help you consider the risks associated with your commercial property and find appropriate insurance based on the building, its occupants and your individual requirements.

Whether you own a single commercial unit or a portfolio of let properties, speak to West Craven Insurance about arranging suitable commercial landlord and let property insurance.