What Insurance Does a Commercial Lease Require?

Key points

• The limit in your lease is the minimum. Whether it's enough depends on the risks your business carries.
• Have the landlord noted on your policy in the exact name and capacity the lease uses.
• A certificate of currency records your cover on the day it is issued, and we release yours once we have received your premium. Your schedule (the pages of your policy listing each cover, limit and sum insured), wording and endorsements carry the full terms.
• If a clause asks for a limit, waiver or notice an insurer cannot provide, speak to your solicitor before you sign.

My lease says I need insurance. What do I buy?

1. 1What must you insure? Commonly public liability, sometimes called public risk, glass and your own property. Add workers compensation or business interruption if the lease requires them.
2. 2What does the landlord insure? Some leases require full building replacement cover. The standalone-building leases we hold instead allow recovery of the premium through outgoings without obliging the landlord to insure or rebuild. Your share of outgoings can be nil. In strata, the body corporate commonly insures the building through levies, so the unit's lease may contain no building insurance. Commercial landlord insurance for your strata unit explains the owner's separate cover; who pays building insurance on a commercial property explains the cost split.
3. 3Whose name goes on whose policy? Often the landlord's interest, noted on your policy.
4. 4What rights do you give up after a loss? Some leases release both sides from claims for damage their own insurance covers. In the leases we hold, the tenant releases and indemnifies the landlord, except where the landlord's negligence or default caused the loss.
5. 5What if you do not insure? You breach the lease, and some leases let the landlord end it when a policy lapses.

Which limits does your lease require?

Cover below the required limit breaches the lease. A claim above your policy limit leaves you funding the balance. Public Liability Insurance explains the limits; what public liability insurance costs explains the premium.

If you sell or make goods, check whether the lease requires a combined public and products liability limit. On the business packs we place, public liability applies per occurrence; products liability shares one limit across the year's claims. Product Liability Insurance explains why matching dollar figures may not mean matching cover.

The limit required of a tenant does not set the owner's limit. A landlord can also be sued; property owners liability covers that separate risk.

My landlord wants to be on my policy. What do I do?

Being noted is different from being insured. If the lease asks for the landlord to be an insured on your liability policy, an interested-party notation alone does not meet that requirement.

Who pays the excess on the landlord's insurance claim?

Some leases treat that repayment as additional rent. Where there is no fault test, even storm damage, a burst pipe or vehicle impact can leave you paying the excess. The clause may also pass on premium increases caused by your use. Why commercial insurance goes up explains other renewal increases.

Ask about the landlord's excess at heads of agreement, when the main terms are negotiated, and again at renewal. It can change without notice to you. If the landlord raises it to reduce the premium, a reimbursement clause can leave you carrying the extra excess.

Your liability policy may not reimburse it. On most liability policies we place, a lease obligation to insure the premises can exclude liability assumed through that term. The wording and cause of loss decide the answer. Insurance excess explained covers the trade-off in choosing an excess.

What changes can affect the landlord's insurance?

A lease commonly prohibits conduct that voids the landlord's policy, raises its premium or breaches insurer requirements, and makes you pay increases your use causes. In our experience, missed air-conditioning maintenance and damage from business operations are common problems. What a tenant can do that voids the landlord's insurance explains them, including damage from a cafe exhaust.

What does a certificate of currency prove?

If you pay by instalments through premium funding, we release your certificate once the funder's payment has arrived, not when the application is made. How premium funding works explains the rest.

A certificate does not show exclusions, conditions, excesses or whether the fit-out sum insured is adequate. Read the schedule and wording for those details.

It is a snapshot: a July certificate will still show the old limit if you reduce cover in September.

We show the cover your landlord requires on the certificate, without listing the other insurance your business holds.

Does your policy meet the lease requirements?

The insured entity. Name the correct tenant or landlord. The company running the business may differ from the one holding the lease. For a trust or super fund, check the trustee's role too.

The business description. Your schedule should describe the work carried out at the premises. A landlord policy does not insure the business operating inside. Mixed-use building insurance explains buildings with shops below and flats above.

The required sections. Check liability limits and cover basis, glass, property and fit-out, plus workers compensation or business interruption if required. An otherwise good policy does not make up for a missing required section.

The sums insured. A lease may make the fit-out yours to insure, but policy definitions and the schedule decide which policy covers it. Check both to avoid each side assuming the other arranged cover. The insurer covering the damaged item usually pays first and may recover from the other side if the lease and legal liability support it. Retail Insurance and Office Insurance explain tenants' cover; the commercial landlord's insurance guide explains the owner's.

We can work through the insurance clauses with you and identify cover that needs attention. Commercial landlords cover explains the owner's side, including air conditioning and glass.

The gaps we usually find concern property, glass, business interruption, air-conditioning breakdown or property owners liability. These covers can generally be added or adjusted.

Your solicitor advises on what the clauses mean, whether they are reasonable and the consequences of a breach, including the damage and destruction clause.

What if an insurer cannot meet a lease requirement?

A clause that says plate glass. A lease that says plate glass may simply be asking for the glass cover available today. The term alone does not make the requirement impossible.

A shopping-centre template may demand a liability limit that is hard to obtain for a small operator in a hazardous trade, or products cover in a form that trade cannot get. Only the insurer can promise notice before cancellation.

Raise any hard-to-place limit, waiver or cancellation notice at heads of agreement. Insurance clauses may still be negotiable. Your solicitor can advise on the change or written agreement needed before you sign.

FAQ