Who Pays for Building Insurance on Commercial Property?

Investing in commercial property can be incredibly rewarding. However like any financial investment, it can be wise to protect yourself against risk.

Building insurance is one of the ways you can do this. Who pays for building insurance on commercial property, are landlords responsible and is it the same for a mixed-use property?

As a landlord, arranging and paying for buildings insurance is typically your responsibility. However, this responsibility can be passed to a commercial tenant via the lease agreement. If this is something you want to do, make sure you include it in the agreement so you and your tenant both know exactly who is paying what.

Landlords are typically responsible for commercial buildings insurance because of your insurable interest as the owner, landlord or freeholder. This means you are the one directly affected by any damage to the property and are most protected by the insurance.

Insuring mixed-use properties — where the building is part commercial and part residential — is more complicated than regular buildings or commercial buildings insurance. You, as the landlord, are still the insurable interest. This means, because you own the building, you’re most at risk when things go wrong. However, each tenant can also contribute towards the insurance, as with regular commercial buildings insurance.

This gets complicated when one residency has more risk associated with it — a space with a workshop as opposed to a flat, for example. Many insurance companies can provide you with a bespoke quote for mixed-use property buildings insurance, so be sure to contact us if you need one.

Commercial property insurance covers permanent fixtures and fittings, the building itself and anything that is attached to it. This includes things like:

• Walls

• Roofs

• Floors

• Doors

• Chimneys

Your tenants don’t need to have their own building insurance as they have no insurable interest in the building itself. This is because you own the bricks and mortar and not them. However, it is possible as a landlord to pass the cost of this insurance onto your tenant, just ensure that it is detailed in your lease agreement.

As a landlord, you will likely have insured the property in the case of damage or loss to permanent fixtures and the building itself. However, your tenant may want to look into extra cover for themselves.

Contents insurance

Your tenant will have to sort out their own contents insurance, as commercial buildings insurance doesn’t usually cover contents. As a landlord, you will also have to arrange your own contents insurance to cover any of your own items within the property.

Tenants improvement cover

If your tenant is planning on making some improvements to your property, it might be a good idea for them to arrange tenants improvements cover. This can include new worktops, flooring and other things that wouldn’t be covered by your insurance policy.

It is common practice for landlords to request that tenants cover the cost of commercial buildings insurance. Include this in your tenancy agreement if you want to do so.

If your property is empty, you're looking for a new tenant or renovation work is ongoing, it’s a good idea to take out unoccupied landlord insurance. This insurance often covers fire, lightning and explosions as standard, with water damage as an add-on. It can also cover malicious damage to the property while it remains empty. Because certain issues are more likely to be missed in an empty property, they can be expensive to fix if left unaddressed.

Having the right insurance for your commercial properties is a key part of protecting you against any potential risk. By clearly stating who is paying for what in agreements between yourself and your tenant, you can establish who pays for building insurance on commercial properties. In the case of mixed-use properties, contact your insurer to ensure you have the correct cover in place.

We offer building insurance as part of our landlords insurance policies – and you can get a quote either online or by calling our experts on 0330 808 8251.

Explore our commercial property insurance options, covering a range of properties from our trusted network of insurers. Whether it's a single property or an entire portfolio, we've got you covered. Get a commercial property insurance quote, call us at 0330 828 0512, or request a call back at a convenient time.