If you own or lease a commercial property, you must have commercial property insurance in place. Actually, we should qualify this statement with ‘you must have the right commercial property insurance’ in place.
Some of the most upsetting situations our team encounter is when a business owner or property investor whose premises has suffered a disaster such as a fire, flood, or explosion, and their insurance does not respond because they either:
- Did not take out correct or adequate cover when they purchased their commercial premises insurance policy, or
- Their business has grown, and they did not update their insurance to reflect this
To ensure you do not face such a stressful situation, we’ve prepared this straightforward guide about commercial property insurance.
What is commercial property insurance?
Commercial property insurance is a type of building insurance policy. It’s intended for owners of buildings that function as commercial premises, whether you lease the property to a commercial tenant or run your own business from it.
When it comes to insurance for the building itself, the type and extent of cover required will depend on the following:
- The building type - commercial property buildings can vary widely in design and features (for example, if it has a complex heating or electric system, you’ll need to ensure that your insurance cover extends to repairing or replacing it)
- The use of the building - if the business conducted on the premises involves the use or manufacturing of hazardous materials or expensive goods or has hundreds of people coming in and out of the building every day - then a specific type of insurance cover will be required
Who needs commercial property insurance?
There is no legal requirement to have commercial property insurance.
However, commercial property insurance could save your business if you own the building you work from. Remember, no one likes paying insurance policies, but if a disaster happens, you will be eternally grateful that have the correct cover.
How much commercial property insurance do I need?
If you own or lease a commercial property, you’ll need to have the following cover:
- Commercial building insurance – provides insurance against damage to the building itself (for example, if the roof of the building is damaged in a storm, your insurance should respond to fund the repairs)
- Property owner’s public liability insurance – covers you against claims and legal fees by a third party who suffers an injury or property damage at the premises due to negligence
- Contents insurance – covers the costs of any loss or accidental damage concerning the contents of the building
- Loss of rent – ensures that you still receive rent if the premises become unusable following a disaster such as a flood or fire
How is commercial property insurance calculated?
Commercial property insurance costs depend on several factors, including the amount of cover you need, the property's location, and the structure's rebuild cost.
To get the best deal, it’s imperative to work with a reputable insurance broker who understands not only the insurance market but also the type of insurance that covers your business needs.
Is VAT payable on commercial property insurance?
Your commercial property insurance is not subject to VAT. The insurance costs you pay can also be used against your taxable income, provided they’re “wholly and exclusively” for the business.
Can I make my commercial property tenant pay for insurance?
Yes, it is standard practice for commercial property landlords to recoup part or all of their building insurance from their tenants.
Furthermore, tenants must organise other policies such as contents, business interruption, and public liability insurance. If you need further advice on how to manage commercial tenants, our expert team of commercial property lawyers can advise you on your rights and obligations.
Does commercial property insurance cover me if I run my business from home?
If you run your business from home, the building might already be covered by your home building's insurance policy.
However, this depends on the type of business you run. You might need additional cover if you are receiving clients or visitors at home.
Is there anything building insurance will not cover?
Most commercial building insurance policies will not cover for:
- General wear and tear (for example, paint peeling, thinning carpets, and small bumps and knocks, damage the structure over many years)
- Acts of war and terrorism (some insurers provide particular policies that cover the latter)
If you take one thing away from this article, let it be this – always, always, always read your insurance policy and have it reviewed by a commercial law solicitor. It may seem like an inconvenience, however, the peace of mind gained in the knowledge that your policy covers everything you expect it to is priceless.
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Having adequate commercial insurance is essential to ensure your business and/or property investment has the protection it needs to bounce back from theft, damage, or a disaster.
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