Commercial property insurance
Protecting businesses by covering physical assets like buildings and equipment from risks such as fire and theft
A good commercial insurance policy is crucial to protect the landlord’s property and their risks from other sources.
Most policies will cover the following risks and the premiums would usually be paid by the tenant through service charges.
What does commercial landlord insurance cover?
You might have a block policy with multiple properties covering the following:
Commercial building insurance
Public liability
Employer liability
Loss of rent
Malicious damage by tenant
Legal expenses
Underground pipe and cables, trace and access
How is commercial landlord insurance different from residential landlord insurance?
There is little difference between commercial and residential landlord insurance, as far as the landlord is concerned - both require a specific landlord policy and both cover similar risks.
However, residential landlords always pay for their insurance whereas commercial landlords usually pass on the cost to their tenants via service charges.
Service charges are usually annual charges sent to commercial tenants by landlords for the various services they provide, and they are in addition to the rent.
Service charges are more likely to be significant for multi-occupied buildings where external maintenance and repairs are apportioned between the tenants.
Examples of annual service charges include:
Insurance
Servicing and testing of fire equipment, extinguishers, emergency lighting alarm systems etc.
The building repairs and maintenance, including periodic external painting
Grounds and estate maintenance including paths, roads, gardens, parking areas
Cleaning of common parts
Gas checks, when the landlord takes responsibility for this
Electrical inspections if the landlord takes responsibility – five yearly
Lift maintenance
Service charges may be apportioned by floor area, rent payable or other metrics as agreed in the lease.
Dilapidations is a term used to describe the extent of deterioration in the state of repair of a building and there is a process used to measure and value this.
Commercial leases usually contain repairing obligations and with FRI leases often quite extensive ones.
Tenant liabilities can even extend to defects present before they signed a lease, unless these are noted at the time.
Clauses in the lease usually use terms like “keep in a good tenantable repair”.
At the end of the term or sometimes before this if there are issues, a survey will be asked to draw up a schedule of dilapidations for which the tenant will be held responsible.
Every property in the UK is assigned a “Use Class” category which defines what activities a residential or commercial property may be used for by its lawful occupants.
First introduced in the Town and Country Planning (Use Classes) Act 1987, this was updated in September 2020 making it easier to change 'Use Class’ allowing business more flexibility to adapt to swiftly changing environments.
Every commercial lease will contain a ‘user clause’ which defines what the tenant can use the building for providing it is assigned the same use.
The more restrictive the user clause, the more the rental value of a commercial building is restricted.
Changing the use of a building would usually need full planning permission, or make use of permitted development rights, e.g. from a shop into a restaurant, or a restaurant into an office or office to residential.
Commercial bailiffs can be used to encourage tenants to pay their rent on time.
The Commercial Rent Arrears Recovery (CRAR) process allows landlords to seize a tenant’s goods from the demised premises in order to recover unpaid rent.
It replaced the old common law right to levy distress, but is now more strictly regulated than the old regime - it requires the use of enforcement agents and tenants must be given notice in advance.