Commercial Property Insurance
Landlords of buildings used for a commercial/business activity, commonly arrange an insurance package which contains the following covers:
- Building Insurance – cover for the costs of repairing/reinstating the building following insured accidental loss or damage such as fire, flood, earthquake and so on.
- Loss of Rents Insurance – cover for lost rental income should the building be unable to be occupied due to insured loss or damage occurring.
- Owners Liability Insurance – cover for the landlord’s liability to the tenant and other parties for property damage or personal injury caused in connection with the building. Cover is normally extended to include Statutory Liability which insures the landlord against prosecution for unintentional breaches of the Building Act, Resource Management Act of Health and Safety in Employment Act
Points to Consider
- Who arranges cover – whilst it is common under most commercial lease agreements that the tenants of the building are responsible for paying for the landlord’s insurance, landlords should not allow tenants to arrange the building insurance package on behalf of the landlord. The landlord should arrange, control and pay for the insurance and seek reimbursement of the premiums from the tenant. This way, the landlord can ensure they are adequately covered, and that the premium has been paid.
- Who your tenants are - Commercial Property insurance premiums are affected by the nature of the tenant’s activities. Landlords seeking new tenants should be mindful that the higher the fire risk associated with the potential tenant’s activities, the higher the cost of the insurance. This may cause a problem in a multi-tenanted building as it would increase the insurance costs for all the tenants.
- How long would it take to reinstate your building – a loss of rents insurance will normally provide cover for up to 12 months lost rent from the date the building is damaged and unable to be occupied. Depending on the size and complexity of your building, it may be necessary to obtain cover for a longer indemnity period such as 18 or 24 months to guarantee your income whilst the building is reinstated. Delays can occur for a number of reasons including waiting on professional specifications, building consents, resource management consents, and availability of tradespeople.
- Vacant Buildings – vacant commercial buildings are a concern to insurers and considered to be of a higher risk of vandalism and malicious damage. It is therefore important to disclose to us if your building is unoccupied or is to become unoccupied in the near future. Failure to do so may prejudice a claim.
- Insurance Valuations – Commercial buildings are normally insured for an estimated reinstatement amount, excluding GST. This amount becomes the maximum amount an insurer will pay for all costs incurred to reinstate the building following insured loss or damage. Therefore, there is the very real potential that buildings may be underinsured. The best way to prevent this, is to obtain an insurance reinstatement valuation from a professional property valuation specialist. It is common for most commercial lease agreements to include provision that the tenant must contribute to the cost of a reinstatement valuation up to an agreed limit.