Written by William Paull
Co-Founder & Account Director
On this page
- What is in the insurance clause of a commercial lease?
- The six questions to ask of a lease insurance clause, and the ones a lease leaves out
- What limits does the clause set, and are they the right ones for you?
- What does "note the landlord's interest" actually do?
- Who pays the excess on the landlord's insurance claim?
- What happens if the tenant does not take the insurance out?
- What can you not do under the lease without affecting the insurance?
- What does a certificate of currency prove, and what does it not?
- How do you tell whether the policy you hold answers the clause?
- What happens when the clause is impossible to comply with?
- Can the lease help fix an underinsured building?
- Does it change if the premises are a strata unit?
- Does a retail lease change any of this?
- FAQ
What is in the insurance clause of a commercial lease?
Six questions: what the landlord insures, what the tenant insures, whose name goes on whose policy, what each side gives up after a loss, who pays the excess, and what happens if the tenant doesn't insure.
A tenant can promise something no policy provides. A landlord can accept a certificate that doesn't evidence what the clause asked for, and both sides stay satisfied until somebody claims.
The six questions to ask of a lease insurance clause, and the ones a lease leaves out
We read three Queensland commercial leases we hold against these questions, all drafted from one law firm's precedent. Three of the six had no clause answering them at all.
| The question | Who it binds | What a lease commonly says, and what the leases we hold say | What is worth checking |
|---|---|---|---|
| 1. The landlord's insurance | The landlord | Many leases put a covenant on the landlord to insure the building for its full replacement value against the standard perils. Not all do. The leases we hold carry no such covenant, and all three say expressly that nothing obliges the landlord to repair or reinstate | Whether the lease obliges the landlord to insure, or merely lets the landlord recover the premium |
| 2. The tenant's insurance | The tenant | The tenant will maintain, for the whole term, public liability at a stated limit for any one occurrence, glass cover, and insurance of its own property. All three leases we hold require public risk, glass, and the tenant's own property. None names products liability, and neither workers compensation nor business interruption is required of the tenant | Whether the policy carries every one of those sections, and to what value the tenant's own property must be insured |
| 3. The notation requirement | The tenant | The landlord's interest noted and a certificate produced. In the leases we hold the notation attaches to the public risk and glass cover, not the tenant's own property | Whether the name and capacity are right |
| 4. The release and the waiver | Both, or one | Each side gives up the right to sue the other for insured loss | Which direction the release runs |
| 5. The tenant's liability for the excess | The tenant | The tenant reimburses the landlord's excess, commonly as additional rent | Whether there's a fault trigger |
| 6. Failure to insure | The tenant | The landlord takes the cover out and bills it, or treats it as an essential-term breach, which is what the three we hold do | Which your lease does |
Make good isn't an insurance clause and no policy pays for it. It's covered for office tenancies on Office Insurance and for landlords in our who pays for building insurance guide.
Parts one and two get read, and parts three to six decide the outcome. The only time to amend them is before signing.
What limits does the clause set, and are they the right ones for you?
A lease sets minimums, and a minimum is a floor, so complying isn't the same as being properly insured. Twenty million dollars is the public liability limit we usually find written in, and ten million turns up as well. The right figure depends on the business's exposure.
The public liability limit. Carrying less than the lease requires is a breach. If a claim exceeds the limit, the amount above it is the business's to fund. We explain why the numbers are what they are on Public Liability Insurance, and what the cover costs in what public liability insurance costs.
A combined public and products limit in a lease may not mean what the same figure means on a policy; Product Liability Insurance explains why.
The loss of rent minimum. Where part one of the clause does put a building insurance covenant on the landlord, the clause often names a minimum period for the loss of rent cover. Where a period is named, twelve months is a common one, but it's often not enough: what we recommend is in the FAQ below. We explain what the cover pays for in loss of rent insurance, and how to size the period in the commercial landlord's insurance guide.
What does "note the landlord's interest" actually do?
A notation records the landlord's stake in the insured risk. The notation doesn't change the cover, it's free in our experience, and it's how the landlord's name reaches your certificate of currency. Being noted isn't being an insured, and a policy can do one while the clause asked for the other.
Without the notation, the certificate can't show the landlord's interest. That leaves the tenant in breach of a clause they thought they had satisfied.
The name has to be exactly right, including the capacity. Where a landlord holds the property through a trust, the entity has to be noted as trustee, not simply by its own company name. A trading name is never a substitute for the registered entity, and a notation in the wrong name evidences nothing. The wrong name is the single most common defect we find when we check a notation.
Being noted isn't the same as being an insured. Under Australian insurance law, a person who is specified or referred to in the policy, by name or otherwise, as somebody the benefit of the cover extends to has a direct right to recover from the insurer. That person never signed the contract, but the right is real. That direct right is what a landlord asking to be "named on the policy" is generally after. A bare notation is a different thing: the legislation doesn't use the word "noted" at all, so whether a notation carries any right to recover turns on the words the policy uses.
And the real right comes with the tenant's baggage attached. A landlord who does have a right to recover under a tenant's policy takes it subject to the same defences the insurer would have against the tenant. Those include defences about the tenant's own conduct. So a landlord relying on a tenant's policy is relying on the tenant having disclosed properly, paid the premium, and complied with the policy conditions.
The mutual release, and the waiver of subrogation. Some leases include a mutual release: each party gives up the right to sue the other for damage its own insurance covers. Each also promises to try to get its insurer to do the same (a lease may call this a waiver of subrogation). Subrogation is the insurer's right, after paying a claim, to go after whoever caused the loss. Giving that right away is a promise only the insurer can make. A tenant who signs the clause has promised something they don't control, so the promise needs confirming with the insurer.
The other shape is a one-way release. In all three leases we hold, there's no mutual release and no waiver of subrogation anywhere. What sits in their place runs one way only: the tenant releases the landlord and separately indemnifies the landlord, carved out only for the landlord's own negligence or default. A tenant who reads "release" as mutual has read the opposite of what the clause does.
Who pays the excess on the landlord's insurance claim?
Often the tenant, under the lease rather than the policy. A common clause makes the tenant reimburse the excess where the claim arises from the tenant's act, default, or negligence, but not universally. The leases we hold carry no fault trigger, so any claim brings the excess back to the tenant, whatever caused it.
The landlord holds the building policy, and that policy carries an excess. On a commercial building the excess isn't a small figure. The excess can be much larger where the building has a claims history or sits in a flood or cyclone area. Many leases characterise the tenant's reimbursement as additional rent, so the landlord can enforce it the same way as rent.
In the leases we hold, the tenant's fault isn't part of the test. The clause says expressly that it applies whether or not the tenant contributes to outgoings. So a storm claim on the premises, a burst pipe in the ceiling above them, or an impact by a passing vehicle all end with the landlord's excess on the tenant's invoice.
The tenant is exposed to a number they have never seen. The excess is set on the landlord's policy at the landlord's renewal, and it can move without the tenant being told. Where a landlord accepts a higher excess to bring a premium down, the saving is the landlord's, but the additional exposure lands on the tenant under this clause.
The tenant's own liability policy may respond, and may not. A liability policy generally answers legal liability the insured would have had anyway, but a liability picked up by signing a contract can be treated differently. Many wordings limit cover for liability assumed under contract. We explain how excesses work generally, and the trade-off in choosing one, in insurance excess explained.
Want to know whether your own liability policy answers a clause like that? It takes one call to find out.
What happens if the tenant does not take the insurance out?
Many leases let the landlord take out the cover the tenant didn't, recover the premium as additional rent, and still treat it as a breach. Not every lease does: the leases we hold give no step-in right and name insuring as an essential term, so a lapsed policy can end the lease.
The breach isn't cured by the landlord fixing it. Step-in clauses are almost always expressed as being without prejudice to the landlord's other rights, so the default still happened. On a serious or repeated default, that can matter at renewal or on an assignment.
And a lease with no step-in clause isn't the softer version. The leases we hold carry an essential terms clause instead: a short list of the covenants whose breach the landlord may treat as repudiation of the whole lease. Insuring is on that list, alongside paying the rent, the permitted use, maintenance and repair, and assigning without consent. An unserviced air conditioner sits on the same list as an unpaid insurance policy.
Reducing a limit at renewal breaches the clause exactly as a lapse does. A reduced limit happens far more often, because it doesn't feel like a decision about the lease at all. The other quiet lapse is a policy not renewed because an invoice went unpaid.
What can you not do under the lease without affecting the insurance?
Almost every commercial lease says the tenant must not do anything at the premises that voids the landlord's policy, increases the premium, or breaches the insurer's requirements, and must pay any increase their use causes. We explain what that catches, from the six-monthly air conditioning service to a change of use, and the three ways it reaches your wallet, in what a tenant can do that voids the landlord's insurance.
What does a certificate of currency prove, and what does it not?
A one page document confirming a named policy was in force for a stated period. A certificate is evidence that cover exists, not that the cover matches the clause. For a commercial lease no legal standard says what it must contain, and it doesn't show exclusions, endorsements, or excesses.
What it doesn't show. A certificate doesn't show the policy conditions the insurer imposed, whether the sum insured on the fit-out is adequate, or whether the wording covers what the business does. Everything that decides a claim sits in the schedule and the wording, and a certificate summarises neither.
The line we draw, and why an interested party cares about it. Whether a certificate says anything about the premium having been paid depends entirely on who issued it. We won't issue a certificate of currency until the policy is paid and the cover is confirmed in force. That's deliberate rather than administrative: an unpaid policy can be cancelled out from under whoever is relying on it. A document that says nothing about payment leaves that party with a risk it can't see. That's one reason a landlord, a financier, or a head contractor may ask for a certificate of currency specifically rather than for evidence of insurance.
The one case our line doesn't touch is premium funding. A funded premium is paid to the insurer in full on day one and the client repays the funder over the year. So a funded policy is a paid policy and its certificate issues in the ordinary way. How premium funding works sets out the mechanism.
And it's a snapshot. A certificate issued in July says the policy existed in July. If the limit is reduced in September, a section cancelled, or the policy allowed to lapse, the certificate is still sitting in the landlord's file saying everything is fine. A noted party is generally told when a policy is cancelled or materially altered, but the certificate can't tell anybody anything.
How often a fresh one has to be produced is a drafting question. Some leases require a certificate at each renewal, which puts the obligation on a calendar. In the leases we hold, the obligation bites on request only, with no renewal trigger, so it rests on the landlord remembering to ask. That's how a tenancy can run for years with everybody satisfied and the notation never once checked.
A certificate of currency is a document handed to a third party, and it can disclose more than the fact of cover. Depending on how it's produced, a certificate can show what sections a business carries, what its tools or stock are insured for, and sometimes what it paid. A business handing one to a landlord, a principal, or a head contractor is entitled to have it show what the clause actually requires and no more, and that's a fair thing to ask the broker who issues it. That's how we produce ours: a certificate is set to what the person asking has to satisfy and nothing beyond it, because a schedule of everything a business insures, and for how much, shouldn't be circulating on paper we no longer control.
Four things are worth checking on a certificate. The legal entity and the limit are both read against the lease, as in the schedule checks below. The period, on a renewal request, means the coming year rather than the one just finished. And every cover the clause required has to be there: a clause asking for liability, glass, and the tenant's own property needs a certificate evidencing all three.
How do you tell whether the policy you hold answers the clause?
By reading the schedule, not the certificate. Four checks do most of the work: the insured entity against the lease, the occupancy description against what actually happens at the premises, each required section against each part of the clause, and the sums insured against what they cover.
Check the insured entity. The name on the policy has to be the entity named as tenant, or as landlord, in the lease. Where a business trades through one company and holds the lease through another, or where a building is held by a trust or a self managed super fund, this is the check that finds the mismatch.
Check the situation and occupancy description. The description on the schedule is what the insurer priced. A schedule describing a property owner risk with a tenant underneath it is a landlord's policy. That policy answers claims by people coming onto the property, and it covers nothing about the business operating inside. Where the building sits in a self managed super fund, it's always two policies. We explain the landlord's side on Property Owners Liability.
Check each required section against each part of the clause. Liability at the required limit and on the required basis. Glass, if the clause names it. The tenant's own property and fit-out. Workers compensation and business interruption, where the clause requires them. A missing section is a breach, even where the policy is otherwise excellent.
Check the sums insured against what they have to cover. A desktop building replacement estimate prices the rebuild of the building, and its own assumptions expressly exclude the lessee's fixtures, fittings, plant and equipment, along with contents, loss of rent, and liability. So if nobody puts a separate sum insured against the fit-out, whoever the lease says should insure it, there's no cover for the fit-out anywhere. We explain who insures it in the commercial landlord's insurance guide and, for shops, on Retail Insurance.
One question worth putting to whoever arranges the cover: if the landlord has been made an insured on a liability policy, can each of you still claim against the other?
What we do with a lease. We don't insist on seeing it. When a client gives us a copy, we read it and set the covers to match what it says, rather than assuming ownership decides. For commercial landlords that means matching the building policy to what the lease keeps with the owner. For owner-occupiers who hold the building in one entity and trade from another, it means checking that the lease between the two entities exists and is current. That lease is what makes loss of rent respond at all, and we raise it as a matter of course.
What we don't do. When we read a lease, the job is deliberately narrow: we work out which sections you need to hold, so the certificate of currency you hand your landlord answers what they asked for. We don't give a verdict on what your lease means, we don't advise on the consequences of a breach, and we don't tell you whether a clause is reasonable. That's your solicitor's work.
And if the check finds a gap, fixing it is usually a short job rather than a project. Almost every gap a lease clause exposes is one of a short list: property, glass, business interruption, air conditioning breakdown, or property owners liability. Arranging or amending those covers is generally same day or next business day work.
What happens when the clause is impossible to comply with?
You get the words changed before you sign, because an impossible clause is still a live breach. The problem arises when the lease template is older than the insurance market: the clause asks for a cover nobody writes, a limit hard to place for that trade, insurance over property the tenant doesn't own, or a promise only an insurer can give.
The cover doesn't exist in that form. "Plate glass insurance" is the everyday example: plate glass is an older term, and modern glazing is generally float, toughened, or laminated. So a clause asking for it is in practice asking for the glass cover the market writes today. The glass question in the FAQ below explains what glass cover reaches.
The limit is difficult to place for that trade. A template written for a shopping centre can demand a liability limit that's genuinely hard to obtain for a small operator in a hazardous occupation. The same template can demand products cover in a form that occupation can't get.
What to do about it, in order:
- Find it before signing. Insurance clauses are more negotiable than most people assume, and an amendment agreed at heads of agreement stage costs nothing.
- Ask for the words to be changed to what is actually available, and where they can't change, get the position recorded. Where the wording has to stay, a short exchange of emails confirming what was agreed, kept with the lease, beats a clause nobody can satisfy.
A clause that's merely silent is a different problem, dealt with on who pays for building insurance on a commercial property.
Can the lease help fix an underinsured building?
Yes, and which part of the lease does it depends on the kind of lease. On a gross lease the rent review is the recovery, and on a net lease the tenant is already funding the correction through outgoings.
For the landlord: correcting an underinsured sum insured moves the premium, and rent reviews are for your property adviser, not your broker. A desktop building replacement estimate settles the figure, and we commission one at no cost to you, for our purposes as your broker, to inform the advice we give you.
We explain the fuller version in why your commercial insurance went up, and why the gap is so common in Underinsurance: The Biggest Risk to Commercial Building Owners.
Want the rebuild figure in front of you before the next review comes around? One phone call starts it.
Does it change if the premises are a strata unit?
Yes, and mostly by what the lease doesn't say. In a strata scheme the building is commonly the body corporate's to insure, funded by the levies the lot owner pays. So a lease of a strata unit may carry no building insurance at all. In Queensland, whether the body corporate must insure turns on how the scheme was subdivided, set out on Commercial Strata Insurance.
In the two standalone leases, the building policy is the landlord's and the lease says how it gets paid for. Outgoings is defined at length. The definition expressly includes the provision of insurance cover for the land and the building, including fire and the other usual risks, public risk, glass, and loss of rent. That definition puts the machinery to recover the premium from the tenant into the lease, whether or not the landlord switches it on.
In the strata lease, outgoings is one line and there's no insurance in it. Outgoings is defined as the charges, levies, premiums, rates, or taxes payable by the landlord as owner of the lot. The lease says the landlord must pay them. The levy that funds the body corporate's cover is the lot owner's cost, not the tenant's.
What the body corporate's policy doesn't do is cover the tenant. The body corporate's policy answers the common property, and the building where the scheme has to insure it. That policy doesn't reach the tenant's fit-out, stock, or liability. The tenant's own public liability in the strata lease we hold covers the tenant's occupation of the lot, so common property sits outside that cover. Where the lot boundary runs is therefore an insurance question and not only a title one. Where the building has shops below and flats above, we explain which policy covers which part in mixed-use building insurance.
The by-laws are a separate compliance stream. In the strata lease we hold, the tenant must comply with the by-laws and indemnify the landlord if the tenant doesn't. We explain what a lot owner is left holding, and where the body corporate policy stops, on Commercial Strata Insurance.
Does a retail lease change any of this?
Yes, in ways set state by state rather than nationally, because retail tenancies carry their own legislation on top of the lease, whether a particular tenancy counts as a retail shop lease at all is a legal question rather than an insurance one, and the drafting itself can be aimed at that answer: one of the commercial leases we hold limits the permitted use so that the use cannot make the lease a retail shop lease, which is a reminder that knowing which regime a lease sits under comes before reading its insurance clause.
In Queensland, under the Retail Shop Leases Act 1994 (Qld), a tenant on a retail shop lease is not liable to pay outgoings, and building insurance premiums are outgoings, unless the lease specifies what they are, how they are apportioned, and how the landlord may recover them, so whether your tenancy is a retail shop lease in the first place is worth putting to a property solicitor.
FAQ
My lease says the landlord has to be noted as an interested party on my policy. Does that cost anything?
No. On the policies Consolidated Insurance Brokers places, noting the landlord's interest is free in our experience. A notation changes the policy record, not the cover, so it costs nothing to add, and it's how the landlord's name reaches your certificate of currency.
The landlord is a company acting as trustee of a trust. Does the policy have to say that?
Yes. Consolidated Insurance Brokers checks the landlord's name in your lease against the notation on your policy, so the two match. The notation must record the landlord entity in that capacity, as trustee of the trust, and a trading name never substitutes for the registered entity. Take the entity and its capacity from the lease itself.
Our lease makes me reimburse the landlord's excess if the damage was my fault. Is that normal?
Yes, it is a common clause, often expressed as additional rent. When Consolidated Insurance Brokers reads a lease's insurance clause against your policy schedule, the fault condition is one of the things we check for, because it isn't always there. Check whether yours has one: wording that limits the reimbursement to damage you caused.
What happens if my landlord takes out insurance because I didn't?
Many leases allow the landlord to insure in your place and recover the premium from you as additional rent, but that doesn't cure the breach. That's why Consolidated Insurance Brokers places the cover your lease asks for before it comes to that. Some leases instead make insuring an essential term, so read your lease for which of the two it does.
My lease requires glass cover. Is it actually worth having, or is it just a box to tick?
Yes: where a lease requires it, not holding it is a breach, and the section is generally inexpensive. Consolidated Insurance Brokers checks what it reaches, because glass has no fixed definition: confirm internal glazing, mirrors, and signage. In the leases we hold, the tenant must insure the glass and, separately, replace or repair all broken glass as a maintenance obligation, even when a breakage falls outside the glass section.
My lease says the loss of rent cover must run for twelve months. Is that enough?
It satisfies the lease, but it is often not enough. For loss of rent cover placed by Consolidated Insurance Brokers, we strongly recommend twenty-four or thirty-six months, depending on the owner, and eighteen months is the minimum. That is because designing, approving, demolishing, rebuilding, and re-tenanting a commercial building rarely fits inside a year.
I want to drop my limit at renewal to save money. Does the lease stop me?
Yes, if the lease specifies a minimum: dropping below it breaches the lease from the day the cover changes, exactly as a lapse does. Send Consolidated Insurance Brokers the insurance clause with your renewal instructions, and we check the new limit against the minimum in your lease before it changes. That way, a saving on premium doesn't become a breach.
The lease asks for something my insurer won't agree to. What now?
Get the lease wording changed before you sign. Send Consolidated Insurance Brokers the clause, and we read it against your policy schedule and tell you where the two don't agree. The usual candidates are a waiver the insurer declines to give, a landlord added as a named insured where the insurer will only note an interest, and a promise about cancellation notice that only the insurer can make.
My lease says I must insure "for the full replacement value". How do I know what that is?
Full replacement value is today's rebuild or replacement cost, including professional fees, demolition, removal and compliance upgrades. Consolidated Insurance Brokers helps you set that sum insured, because a figure set too low can cut what a claim pays, as our guide to co-insurance explains.