As part of our commercial property insurance video series, this video looks at what commercial landlord insurance offers and how it works. Learn about the difference between commercial property insurance and standard home insurance.
Calculating the rebuild cost of commercial property
For many landlords their commercial property represents their livelihood or at least a significant investment and therefore want to be sure it’s covered to be completely re-built should the absolute worst happen.
The re-build cost is the amount your buildings insurance covers you to re-build the property, from the ground up. It includes the demolition costs of the old property and debris clearing, architects and planning costs for the new one and of course materials and labour to re-build.
Working out the rebuild cost is one of the most important things you’ll do when setting up commercial property insurance. There are many free online commercial properties rebuild calculators and of course professional services too.
Just be confident you have it right because being under insured can greatly reduce the amount paid out from a claim.
This is because of the Condition of Average.
The condition of average clause states that if you under insure, meaning you give a rebuild cost less than it really is, when you come to make a claim the insurer can reduce the amount paid out by the same percentage you are under-insured.
For example, insuring your property for one hundred thousand pounds when it should be two hundred thousand, and then making a claim for fifty thousand after a bad fire.
The condition of average clause means that because you under-insured by 50% you could end up being able to claim only for twenty-five thousand, which is minus 50% of the difference.
If your property should become uninhabitable from an insurable event such as a fire, the insurance will pay for the rent you are subsequently unable to collect. The indemnity period is the length of time you can claim for ‘loss of rent’ expenses.
So, how long should the indemnity period be?
Well, twelve, twenty-four or thirty-six months are commonly available, and you should seriously consider what is adequate for your building. The whole process of rebuilding could take years; you may well also be faced with looking for new tenants too by the time it’s finished. One of our advisers can give you more details.