Written by William Paull
Co-Founder & Account Director
On this page
- Key points
- What insurance does a commercial landlord need?
- Who insures the fit-out, you or your tenant?
- How much loss of rent cover do I need, and for how long?
- Whose name should the policy be in?
- Does my tenant's insurance protect me as the owner?
- What happens if your building sits empty?
- Does flood or cyclone change what I need or pay in Queensland?
- FAQ
Key points
- Set the building's figure at what a rebuild would cost today.
- Include the outgoings in the rent figure, and pick an indemnity period of 24 or 36 months.
- Hold liability cover yourself, because you are sued as the owner.
- The lease's insurance clauses say which items you and your tenant should insure; the policies show what each side has covered.
What insurance does a commercial landlord need?
Three covers, and your lease sets out who should insure the rest. Commercial landlord insurance puts the building, the rent it earns and your liability as the owner on one policy. Each of the three has a figure to get right.
The building. Insure it for its full replacement cost: what it would cost to demolish, redesign, get approvals and rebuild today. That is a different number from what you paid or what the building would sell for, because both include the land, and land doesn't burn down.
In our experience the great majority of commercial landlords we see are underinsured, on gross and net leases alike, and not by choice. The owner has no current idea of what the building would cost to put back, and a figure set at purchase falls further behind as construction costs rise.
A short figure costs you in two ways. Most of the building policies we arrange carry an average clause, which tests your sum insured against 80 per cent of the rebuild cost. Fall under it and a partial claim can be scaled back using the calculation in your policy. How the cut is worked out, and whether a smaller claim is exempt, comes down to your policy. On a total loss, most of the policies we place pay up to 20 per cent above the sum insured, and anything the rebuild costs beyond that is yours to fund. Underinsurance in commercial buildings shows how the gap opens, and the co-insurance clause explained works through the sums.
A tenant who funds the premium may ask you to insure the building for less, and underinsurance can leave you paying part of a repair or rebuild yourself (who pays building insurance explains why).
A desktop building replacement estimate gives you a current estimate of the rebuild cost to set beside the figure on your policy. It is worked out from aerial and street imagery rather than a site visit. We commission it for our purposes as your broker, to inform the advice we give you.
What a landlord policy costs on a building like yours is in our commercial landlord insurance cost guide.
Who insures the fit-out, you or your tenant?
It starts with your lease, which may make you or your tenant responsible for insuring the fit-out. Which policy actually covers it is set by each policy's definitions and schedule, so read those too. Otherwise each of you can assume the other insured it, and leave it uninsured. A tenant who fits out a bare shell generally owns the joinery, kitchen equipment and partitions. A fit-out you supplied, common in retail strips and food precincts, is your asset, though plenty of leases still make the tenant insure it.
On the cover we place, your own fixtures, floor coverings, plant (equipment such as the air conditioning), plumbing and wiring inside the building sit in the building cover. There is no separate item for a landlord's contents, so furniture or appliances you supply in a tenancy go on your own policy as contents. We would rather you insure them yourself than rely on the tenant to insure them under the lease.
The air conditioning is the usual gap. A lease commonly has the tenant service the air conditioning, while replacing a failed unit stays with you. Breakdown sits outside the building cover, so it needs its own section. An old unit can cost three to four times its original price to replace, well past a typical breakdown cap, so check the cap on your schedule. Commercial landlord insurance sets out the figures.
The glass works the same way.
When either side could be responsible for damage, the policy that insures the item usually pays for the repair first. Its insurer may then chase the other side for the cost, where the lease and the law put it on them.
Our read of your lease stops at the insurance clauses. What the damage and destruction clause means for your rent is a question for your solicitor. Commercial lease insurance requirements explains how a lease moves each obligation between you.
Gross lease or net lease, the building policy stays in your name; what changes is who funds the premium. What your tenant does in the building can move your premium a long way, up or down, so check the cost before a new tenant signs. Who pays building insurance on a commercial property sets out both leases and shows how far a tenant can move the price.
How much loss of rent cover do I need, and for how long?
Enough to replace the rent you would lose, for as long as a rebuild and a re-let could take. Set two figures: how much it can pay, and the indemnity period, the longest it can keep paying.
On the business packs we arrange, lost rent is paid only where your schedule carries a rent item under business interruption, for the period you chose. The policy will not lengthen a period that turns out to be short. It pays when damage stops the building being used.
In the leases we hold, the tenant pays reduced rent, or none, while damage keeps the premises unusable. So even a lease with years left to run may not carry your income through a fire.
The figure is the rent plus the outgoings you are entitled to recover from your tenant. Rates, water, insurance and any other outgoings recovered through the lease stop when the rent does, so they belong in the figure. We ask every landlord the same question: "that's your annual rent excluding GST but including outgoings, yes?" Gross and net rent are a long way apart. On most business packs we arrange, the rent item carries an average clause too. A figure set short can be cut back the same way a short building is. Our loss of rent insurance guide works through a claim where the rent on the schedule belonged to a former tenant. It fell well short of the new tenant's rent.
For the indemnity period, we recommend at least 18 months, and often 24 or 36 depending on the owner. The period is yours to choose, and the more months you hold, the better placed you are at claim time. Choosing 24 months does not automatically double the rent sum insured, so the total amount needs to be enough too. A rebuild runs through make-safe, design, approvals and construction before a new tenant can move in, and the months spent finding a tenant after the repairs count too.
Case
When the rent cover ran out.
A violent incident in 2024 left a commercial premises stigmatised and hard to re-let. The owner could not find a new tenant for about 18 months. On a claim we handled, the loss of rent cover paid about $8,000 a month. It stopped when its roughly $135,000 limit was exhausted, about a week before a tenant was finally found.
Case
When the insurer questioned the rent.
A fire shut down an alpine short-stay accommodation business. The insurer first questioned whether short-stay letting income was covered at all. We put the entitlement in writing and worked the insurer's forensic accountant through the peak and off-peak rate evidence. We recovered about $92,000 in lost rent, on top of a building and contents settlement of about $683,000.
Whose name should the policy be in?
The policy has to name each person or entity it is meant to cover. If a trust or super fund holds the building, check the trustee's role too. Your ownership and loan papers give us those names. Bought through a trust but put the policy in your own name? Then the entity that suffers a loss may not be the one the policy insures, and the same applies the other way round.
Check the name at settlement, and again whenever the building moves between entities, because a transfer into a super fund or a new trust is a change the policy has to follow.
Does my tenant's insurance protect me as the owner?
Generally not. Your tenant's insurance protects your tenant's business. A claim can name you as the owner, and your tenant's insurer generally owes you nothing. A landlord extension on your tenant's policy may help, but it can be limited, so check its scope before relying on it.
When someone is hurt at a building, their lawyers usually name everyone connected to it. The owner is easy to find on the title, even one who hasn't set foot on site in years. With a tenant trading there, a court can still order the owner to pay a share of the damages for a hazard in the building.
A commercial lease usually asks your tenant for $20 million of public liability, and that cover is theirs, not yours. A liability limit required of your tenant does not tell you how much cover you need as the owner. We look at your own obligations, the building and its use when recommending your limit. Property owners liability explains how owners are drawn into these claims and what the cover pays.
What happens if your building sits empty?
On most of the policies we place, cover for fire, storm, water damage, malicious damage and theft stops once a building has been empty for 90 days in a row, unless the insurer agrees in writing. Check the period on your schedule, and ask for that agreement before it runs out.
If your building has several tenancies and one sits empty, most of the policies we place keep the cover running while the rest are let. When you take out or renew cover, the insurer asks whether half or more of the building is empty.
Does flood or cyclone change what I need or pay in Queensland?
It can change both. Flood is an add-on on most of the cover we place, so check that your schedule names it. A federal scheme that reinsures cyclone damage can lower the cyclone part of your premium, and insurers that take part apply it automatically.
Some policies include flood from the start, and not every policy lets you add it.
What commercial building insurance costs shows how location moves a premium. Our Brisbane page has the wider flood picture for South East Queensland.
FAQ
I lease out part of my building and use the rest myself. What do I insure?
At Consolidated Insurance Brokers, we treat the part you lease out like any landlord's building: we insure the building, and the rent that part earns. Both activities need to be allowed for. One policy may be able to cover them, depending on the activities and the people or entities involved, so separate cover is not an automatic requirement. Where your business pays rent to the entity that owns the building, the owner can lose rent while the trading company loses business profits. Those losses need to be considered separately, even if you own both entities, and we look at the lease between them and the cover each holds. The business you run there is insured under business insurance, and For Business Owner-Occupiers sets out how the two sides fit together.
I'm about to buy a commercial property that already has a tenant in place. What should I ask for before I settle?
Ask for the current lease, not the agent's summary. Ask for the seller's certificate of currency, which records the cover and the building's sum insured on the day it is issued. Confirm the entity you are buying through, and the trustee if it is a trust or super fund, because the policy needs to name them. Your lender will not settle until it holds a certificate of currency for your own policy, showing the sum insured it asked for. Ask too whether the building was independently valued for insurance. If it was not, the inherited sum insured is probably a guess. A desktop building replacement estimate gives you a current rebuild figure to set it by.
Can I just use my home or personal insurance broker for this?
You can, if commercial landlord cover is a regular part of what they place. It works differently from home cover. The commercial policies we arrange are built from sections you choose, so the rent item is there only if someone chose it. They also carry an average clause that tests your sum insured. How a broker differs from buying direct is in Direct Insurer vs Broker.