Does my commercial occupancy make a difference to my premium?


You have a commercial building. You want to rent it out. Do I need commercial insurance? You are not sure what planning use you wish to use. You could have various trades in the property.

Will it affect my insurance?

Yes, it will definitely affect your insurance. Every occupant type will thus relate to the premium that’s involved.

The first criteria that the insurance company will use for example:-

Type of building

what type of building is it, is it brick, wooden, specially constructed for the type of occupant?

What is the occupying trade?

For instance, if it was a restaurant then it is a much higher rate. If it is an office block it is a much lower rate.

Is any loss of rent required and if so, how much?

If you are going to rent the premises, then you want loss of rent.

Loss of rent itself could be anything from one years through to three years. You need to ensure that you insure the correct amount for the property. If it burns to the floor you wouldn’t know how long it will take to put the property back.

Is any part of the building residential?

This could improve your rating in relation to the property. However, it relates to the commercial element. It will be rated on the commercial basis not residential.

Why do I need commercial property insurance?

Commercial property or commercial landlord insurance is protection for property owners letting out to a third party for commercial use. You may have a business organization or group. There may be a long lease in place. You would then need commercial insurance.

Why are commercial tenants treated differently from other tenant types?

There are differences with tenants. These are known as more domestic than they are commercial. A commercial tenant may be using industrial equipment. They may have 100s of employees. They may deal with hazardous waste. Or using commercial deep fat fryers. A commercial insurance product will look at the users of the building. They adjust the cover to match the risks. It all depends on the occupants in the building. It is important that you understand your commercial insurance is higher rated by the risk. Restaurants are higher than offices.

I am considering having an office block. I am considering renting it out. Is there a criterion for this?

The criteria in relation to office blocks are slightly more relaxed. The rates are normally substantially lower. The insurance companies treat these as a much lower risk. They will look into company status, the date the business was established. The number of full-time employees. The estimated wage roll for all employees. Annual turnover. They will look into the business description i.e. are they solely using it as an office. The building structure will be considered. Does it have self-contained elements. Does it have means of escape. The occupant of the property is critical. They may look at the physical security measures. They may look to see if there is any health and safety provisions put in place.

What does the commercial property insurance cover?

Property owner’s liability.

Commercial property this is the most misunderstood and overlooked for commercial landlords. This is liability insurance for commercial property to compensate a third party. It relates to property damage and injury through negligence. If something fell off, your building you are liable. Not your tenants. It is the landlord’s responsibility to oversee the property. You must make it is adequately maintained. This depends on the lease as well. Each lease has different requirements.

If a third-party delivery takes a fall after tripping. There may have been a loose step in the entrance. You could be held liable in a compensation case.

They can be anything from £1M to £10M for commercial properties.

The rebuild cost or reinstatement value.

This can be one of the most important parts of the commercial insurance. It deals with the cover of costs for repairing damage to rebuilding the property. You must insure for the full cost of rebuilding the property should it be destroyed. Please see previous articles on rebuild cost. Being under insured could be catastrophic for you. If you under insure the building the company may not pay out. They may only pay out part of what it cost to rebuild it. It is important you get this right.

You will find that most insurers have an average clause. The sum insured for the building may not be enough. If not, the claim is reduced by what it should have been. For example, you insure the building for £100,000.00 but it should be £200,000.00. You are claiming £50,000.00. Therefore, you could end up only being able to claim for £25,000.00. I.e. minus the 50% that you have under insured.

It is therefore critical that you look at this.

Loss of rent and the indemnity period.

If your property should become uninhabitable for a period. The insurance company will pay out for the rent. This will be on the basis that you are unable to collect it. They cover you financially.

How long should the indemnity period be for?

This could be anything between one to three years and is commonly available. It needs to be a serious consideration as you need to understand what is adequate for your building. You must look at the worst-case scenario to include demolition. Debris removal and architects. Finally rebuilding which can take a long period of time.

Landlord’s contents

The contents of your building can be difficult to understand. If you turn your building upside down anything that is unattached would be classed as contents. This could mean things such as tables and chairs but not doors. Cupboards and walls which will come under the building insurance. Contents insurance can be a vital part of your protection.

Accidental damage

This isn’t always offered as standard. You must make it clear that you want to be covered for this before you request the policy. Accidental damage is considered damage to your property that is not classed under an insurable peril. This could be such as a burst pipe when nailing into a wall.

Legal cover and expenses

This will help with your legal expenses when taking somebody to court for all such items. Legal cover again is not a standard part of the policy but can be requested as an optional extra.

Malicious damage

Again not necessarily a standard clause within the policy. This is because tenants are normally considered to be on your property with your consent. If there was an incident where they were expressly causing malicious damage. Where they have the intent to do this damage. This would cover you.

What if my property is unoccupied for commercial purposes?

Commercial properties that are empty are problematical when it comes to insurance. You need to understand that the risk is extremely high for an insurance company. They may not always give insurance.

What is the criteria?

The criteria is normally a list of questions that the insurance company will want answered and positive answers to.

For instance, these will normally:-

How long has the property been vacant for?

This is relevant to the insurance company as they will want to know what is going on to fill the property. Is it a long-term vacancy? Is it just short term? Just in between tenants. It is critical that the insurance company know that you have a plan for the property.

How long do you expect the property to be vacant for?

If you do not have a plan for the property or schedule of works, have it on the market and/or a programme to bring it into occupied use. You may be looking for a change of use. Therefore, the insurance company will take this into account.

Is it being let or sold?

This could affect the price of the insurance quite dramatically if you are thinking of selling it rather than letting it.

Is it currently on the market?

The insurance company will see whether it is on the market and whether you are actively doing something about trying to re-let the property.

Are there works taking place?

The insurance company will want to know whether works are taking place in relation to the property.

If works are taking place what are the works?

The insurance company will want to know what works are taking place, how long they are going to take place. They want to know what the cost is and how you are going to fund it. What is the purpose of the works? What is the long-term strategy in relation to the property?

Are there any major or hot works going on?

Hot works normally refer to flat roofs. Work with bitumen can be high risk. The insurance premium could be substantially more.

Is there a jct in place? A jct is a contract that facilitates the process of delivering a building project. They set out the responsibilities for all parties within the process. Their obligations to each other. In this way it is then clear what work needs to be done. It will outline who is doing it. When they are doing it and for how much. They are critical within a building construction business.

Will the property be regularly inspected?

The insurance company will want to know if the properties unoccupied that it is regularly inspected.

Is the property boarded up or bricked up?

You are no doubt aware that it is illegal for squatters to occupy residential property but when it comes to commercial it is not the case. It is thus important that the property is either boarded up and all doors made secure or bricked up. However, this would be critical. The insurance company may need full time security on site as well.

If you are considering any form of commercial insurance then why not contact us and discuss it with us and what your requirements are. Every policy for commercial property is different.

Finally, please read our article following on from this for more information, click here.


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