What Is in the Insurance Clause of a Commercial Lease?

Quick answerA lease insurance clause is a promise you make to the other party, not cover from an insurer, and it reads best as six questions. This page is for business tenants and commercial building owners with a lease to comply with. Send us the clause and we'll check it against your policy: 07 3292 1111.

Written by William Paull, Co-Founder & Account Director · 29 min read · Reviewed by Debbie Blanco, Account Manager

What is in the insurance clause of a commercial lease?

Quick answerSix 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. Three of the six have no clause at all in the leases we hold.

It isn't about who ultimately pays for the building policy: that's on who pays for building insurance. It isn't a list of what a tenant has to hold: that's on For Business Owner Tenants.

An insurance clause in a lease is a contract between a landlord and a tenant, not a contract with an insurer. Nothing in it creates cover or obliges an insurer to do anything. What it creates is a promise: I will hold this cover, at this limit, and I will prove it to you. 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 stay satisfied until somebody claims.

The six questions to ask of a lease insurance clause, and the ones a lease leaves out

Quick answerRead a lease insurance clause as six questions, not as six parts every lease contains: the landlord's insurance, the tenant's insurance, the notation requirement, the release and waiver, the tenant's liability for the landlord's excess, and failure to insure. What a lease leaves out matters as much.

We read three Queensland commercial leases we hold against these questions, all drafted from one law firm's precedent, and three of the six had no clause answering them at all.

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 the commercial landlord's 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?

Quick answerA 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 from the day the cover drops, and if a claim exceeds the limit the excess is the business's to fund. Twenty million is the figure in all three of the Queensland commercial leases we hold, in each case as a limit of not less than that amount arising out of a single incident. In our experience the right limit is the one the business's own exposure calls for, so what the lease asks for is the start of that question rather than the end of it. Why the numbers are what they are is on Public Liability Insurance, and what the cover costs is on what public liability insurance costs.

A lease usually says "for any one occurrence", but public liability limits are commonly written per occurrence while product liability limits are commonly an aggregate for the whole policy year, so a combined public and products figure in a lease and the same figure on a policy don't always mean the same thing. That distinction is explained on Product Liability Insurance.

The loss of rent minimum. Where part one of the clause does put a building insurance covenant on the landlord, it often names a minimum period for the loss of rent cover, and where a period is named, twelve months is a common one. None of the three Queensland commercial leases we hold names a period, because none of them obliges the landlord to insure in the first place. Our default is eighteen months, we recommend twenty-four wherever we can, and twelve is the floor we place only on a client's express instruction, for the simple reason that a substantial commercial building is rarely designed, approved, demolished, rebuilt and re-tenanted inside a year. What the cover actually pays for is on loss of rent insurance, and how to size the period properly is in the commercial landlord's insurance guide.

What does "note the landlord's interest" actually do?

Quick answerIt records the landlord's stake in the insured risk. It 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.

What a notation isn't, and why a landlord relying on a tenant's policy is relying on cover they don't control, is on Property Owners Liability and in the commercial landlord's insurance guide.

It's an administrative change, and in our experience it's free. A notation records who has an interest in the insured risk. It doesn't alter what the policy insures, excludes or pays, and on the policies we place it doesn't change the premium.

It's how the landlord's name reaches the certificate. Without the notation the certificate can't show the interest, and the tenant is 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. A notation in the wrong name evidences nothing, and it's the single most common defect we find when we check one.

A policy can carry more than one. A financier can be noted on the plant section and a landlord on the liability section at the same time.

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, even though they never signed the contract. That's a real right, and it's 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, including 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 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, and each promises to try to get its insurer to do the same (a lease may call this a waiver of subrogation). Subrogation is simply the insurer's right, after paying a claim, to go after whoever caused it. Giving that right away is a promise only the insurer can make, so a tenant who signs the clause has promised something they don't control, and it needs confirming with the insurer.

The other shape is a one-way release. In all three of the Queensland commercial leases we hold there's no mutual release and no waiver of subrogation anywhere. What sits in their place runs in one direction only: the tenant releases the landlord, and the tenant separately indemnifies the landlord, carved out only for the landlord's own negligence or default. A tenant reading "release" and assuming it's mutual has read the opposite of what the clause does, and the check is a short one: read which party is releasing which.

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

Quick answerOften the tenant, under the lease rather than the policy. A common clause makes the tenant reimburse it where the claim arises from the tenant's act, default or negligence. 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, which on a commercial building isn't a small figure and can be much larger where the building has a claims history or sits in a flood or cyclone area. The insurer pays a claim less the excess, and the lease then makes the tenant hand the excess back to the landlord. Many leases characterise that payment as additional rent so the landlord can enforce it the same way as rent.

Whether the tenant's fault is part of the test is the first thing to read. In the three leases we hold it isn't. What triggers the clause is the landlord making a claim, not the tenant causing one, and the clause says expressly that it applies whether or not the tenant contributes to outgoings. On that drafting 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 can move without the tenant being told, and where a landlord accepts a higher excess to bring a premium down, the saving is the landlord's and 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. A liability the insured picked up by signing a contract can be treated differently, and many wordings limit cover for liability assumed under contract. Whether a particular policy answers this particular clause is a wording question. How excesses work generally, and the trade-off in choosing one, is on 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?

Quick answerMany 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 policy is bought to protect the landlord, at a price nobody negotiated. A landlord stepping in buys what satisfies the clause, not what suits the tenant's business, and has every reason to arrange it quickly rather than shop it.

The breach isn't cured by the landlord fixing it. These clauses are almost always expressed as being without prejudice to the landlord's other rights, so the default still happened, and 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. In the three Queensland commercial leases we hold the landlord can't take the cover out and bill it, and what those leases carry instead is an essential terms clause: 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. Three of the eleven bear directly on insurance: insuring itself, the use of the premises, and maintenance and repair, the last two reached by the conduct clause below. 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, and it 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?

Quick answerAlmost 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. In our experience the two most often broken are the maintenance obligation, air conditioning above all, and damage the tenant causes through its own operations.

The maintenance obligation, and air conditioning above all. A lease puts the servicing of plant on somebody, and where it sits with the tenant, the tenant frequently doesn't realise it's theirs. Air conditioning is the one that goes wrong most: the servicing isn't kept up, the landlord doesn't follow it up, and nobody notices until the unit fails or a claim raises the question. In the three Queensland commercial leases we hold the conditions sit in the lease itself: unless the landlord says otherwise, the tenant must service the fire prevention, extinguishing, safety and detection equipment at least every six months, must hold a service contract with an approved contractor attending any air conditioning at least every six months, and must produce the service contractor's written report on request. All three name a failure to maintain those contracts as an express trigger of the tenant's indemnity. The short fix is to read what the lease puts on you and diarise it.

Damage the tenant causes to the building through its own operations. A tenant can damage the landlord's building by running its business normally, without realising that's what is happening. A common example is a cafe fitting a commercial exhaust: the exhaust discharges against a wall or over the roof it vents through, and over time the discharge damages the wall or the roof surface. The lease makes that the tenant's to repair, and it's gradual rather than sudden, which is exactly the kind of damage property policies are least likely to answer. Anything that vents, drains, heats or vibrates is worth a look before it becomes a repair bill.

A change of use. A policy is rated on what the building is used for. A tenancy described to the insurer as light storage that becomes a workshop, a commercial kitchen or a spray booth is a different risk, and the insurer wasn't told. That's a disclosure problem for the landlord and a breach of the lease by the tenant. The right sequence is to tell the landlord first and let them tell their insurer, before the change happens rather than after.

Storing something the wording excludes. Flammable liquids, certain chemicals, expanded polystyrene, batteries in volume. Many building wordings carry conditions about what may be stored and how.

Contractors doing hot work. Welding, grinding and torch work on a roof are classic causes of fire loss, and many wordings carry a hot work permit condition requiring the area to be cleared, a watch kept and the site checked afterwards. A tenant arranging the contractor has to make that happen.

Protections that stop working. A fire door propped open, an alarm not set, a sprinkler head blocked by stock, a security condition nobody passed on to the staff who lock up.

Leaving the premises empty. Most property wordings restrict cover once a building is unoccupied beyond a set period, commonly measured in weeks. A tenant moving out early needs to tell the insurer.

And the biggest cost of conduct isn't in the insurance clause at all. In the three leases we hold, the tenant's conduct reaches the tenant's wallet through the landlord's insurer in three separate places. The excess: where the landlord claims, the tenant reimburses it, as set out above. The rent abatement: all three abate the rent while damage makes the premises unusable, in proportion while they're only partly usable, with an exit for either side where the landlord notifies that repair is impractical and an exit for the tenant if the landlord hasn't repaired within three months, or within such further time as the landlord reasonably requires given the extent of the damage, the difficulty of repair and what materials and labour can be got. That relief falls away where the tenant's negligence, default or wilful act caused or contributed to the damage, and where the landlord's insurer refuses indemnity or reduces what it pays because of the tenant's act or default. And the repair itself: where insurance money that would normally have paid to repair damage isn't paid because of some act, omission, neglect, default or misconduct of the tenant, the tenant's employees or invitees, the tenant is responsible for that repair, and it sits in the maintenance clause rather than the insurance clause.

Asking the landlord what conditions their insurer has imposed is a short, fair question, and it's the sort of thing an account manager will ask on a client's behalf.

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 it doesn't, and the body corporate turns up again in the consents the tenant needs for its works and signage and in the signage fees it pays. What a lot owner is left holding, and where the body corporate policy stops, is on Commercial Strata Insurance.

What does a certificate of currency prove, and what does it not?

Quick answerA one page document confirming a named policy was in force for a stated period. It's evidence that cover exists, not that it matches the clause. For a commercial lease no legal standard says what it must contain, and we won't issue one until the policy is paid and the cover is confirmed in force. It doesn't show exclusions, endorsements or excesses.

Almost every commercial lease has an evidence clause, and this is the document that satisfies it. The two names, certificate of currency and certificate of insurance, are used across the market as though they were interchangeable, and nothing anywhere makes one of them mean something the other can't.

What a certificate normally shows. The insured's legal name, the insurer, the policy number, the class of cover, the period of insurance, and the limit or sum insured. Often the interested parties noted on the policy. Whether it says anything about the premium having been paid depends entirely on who issued it.

What it doesn't show. The exclusions. The endorsements. The excesses. The conditions the insurer imposed. Whether the sum insured on the fit-out is adequate. Whether what the business actually does is covered by the wording. 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. 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 is a policy that can be cancelled out from under whoever is relying on it, so a document that says nothing about payment leaves the party relying on it 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; 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 three Queensland commercial leases we hold the obligation bites on request only, with no renewal trigger at all, which puts it 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 it 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 worth checking on a certificate. The legal entity, which has to be the entity that holds the lease. The period, which on a renewal request means the coming year rather than the one just finished. The limit against the clause, read against the lease rather than against memory. And every cover the clause required: a clause asking for liability, glass and the tenant's own property needs a certificate evidencing all three.

The plain definition of the document, alongside the rest of the vocabulary a lease uses, is in our insurance terms glossary.

How do you tell whether the policy you hold answers the clause?

Quick answerBy 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 it.

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: it answers claims by people coming onto the property, and it covers nothing at all about the business operating inside. Where the building sits in a self managed super fund it's always two policies. The landlord's side of that is 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. This is where the fit-out gap actually comes from. A building replacement valuation values the building. Its own assumptions expressly exclude the lessee's fixtures, fittings, plant and equipment, along with contents, loss of rent and liability. So the building figure never contained the fit-out, whoever the lease says should insure it. If nobody puts a separate sum insured against the fit-out, there's no cover for it anywhere. Who insures it is dealt with in the commercial landlord's insurance guide and, for shops, on Retail Insurance.

Three questions worth putting to whoever arranges the cover:

• Does the schedule show the landlord the way the clause asked, in the correct legal entity name and the correct capacity?
• If the landlord has been made an insured on a liability policy, can each of you still claim against the other?
• Does the clause ask for a waiver against the landlord, and has the insurer actually agreed to give one?

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 the lease between the two entities exists and is current, because that's what makes loss of rent respond at all, and we raise it as a matter of course.

What we don't do. Reading the clause to work out which sections you need to hold, so the certificate of currency you hand your landlord answers what they asked for, is deliberately a narrow job. 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 there's no overlap between the two jobs.

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. Those are the great majority of what a lease sends us, and arranging or amending them is generally same day or next business day work. The thing that costs time is not the fix. It is not knowing there is a gap.

What happens when the clause is impossible to comply with?

Quick answerYou get the words changed before you sign, because an impossible clause is still a live breach. It happens 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. What glass cover actually reaches is dealt with in the glass question in the FAQ below. A harder version of the same problem is a clause requiring insurance against a peril that standard wordings exclude.

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, or demand products cover in a form that occupation can't get.

What to do about it, in order:

1. Find it before signing. This is the whole ball game. Insurance clauses are more negotiable than most people assume, and an amendment agreed at heads of agreement stage costs nothing.
2. Ask for the words to be changed to what is actually available, and where they can't change, get the position recorded. Landlords are generally reasonable about this, because the point of the clause is protection rather than phrasing. 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?

Quick answerYes, 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.

If you're the landlord rather than the tenant, this next part is yours. Most commercial buildings we see are insured for less than they would cost to rebuild today, and correcting the sum insured moves the premium. The lease decides who feels the correction, and the useful step is telling the tenant why. Rent reviews are for you and your property adviser rather than your broker. The figure itself isn't something to guess at: a desktop building replacement valuation settles it, and we commission one at no cost to you, for our purposes as your broker, to inform the advice we give you.

The fuller version is on why your commercial insurance went up, and why the gap is so common is on 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?

Quick answerYes, 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. Whether the body corporate must insure is decided in Queensland by how the scheme was subdivided: in a building format or volumetric format plan it must insure the building; in a standard format plan with detached buildings it may not insure the building at all, so check which plan your scheme is on.

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 and it 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 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. It's defined as the charges, levies, premiums, rates or taxes payable by the landlord as owner of the lot, and the lease simply says the landlord must pay them. There's no insurance limb, because in that scheme the building is the body corporate's to insure and is funded by the levy, and the levy is the lot owner's cost rather than the tenant's. The body corporate's policy is never mentioned in the lease at all. That's the drafting working correctly rather than an oversight.

What the body corporate's policy doesn't do is cover the tenant. It answers the common property, and the building where the scheme has to insure it. It 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 it. 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, which policy covers which part is on mixed-use building insurance.

Does a retail lease change any of this?

Quick answerYes, 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?

In our experience, no. Noting an interest changes the policy record, not the cover, so on the policies we place it's free.

The landlord is a company acting as trustee of a trust. Does the policy have to say that?

Yes. The notation must record the entity in that capacity, and a trading name never substitutes for the registered entity.

Our lease makes me reimburse the landlord's excess if the damage was my fault. Is that normal?

A common clause, often expressed as additional rent. The fault condition isn't always there, so check whether yours has one.

What happens if my landlord takes out insurance because I didn't?

Many leases allow it and recover the premium as additional rent, without curing the breach. Some instead make insuring an essential term.

My lease requires glass cover. Is it actually worth having, or is it just a box to tick?

Where a lease requires glass cover, not holding it is a breach of the lease. Glass is generally an inexpensive section to add, so cost is rarely the deciding factor. What is worth checking is what it reaches, because there's no fixed definition of glass cover: internal glazing, mirrors and signage are the three worth confirming. And a lease can ask for glass twice. In the three Queensland commercial leases we hold it does: the tenant must insure the glass and, separately, must replace or repair all broken glass in the premises as a maintenance obligation. The second obligation doesn't go away because the first one is satisfied, so a breakage that falls outside the glass section still leaves the replacement with the tenant.

My lease says the loss of rent cover must run for twelve months. Is that enough?

It satisfies the lease and is often not enough: 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?

If the lease specifies a minimum, dropping below it breaches the lease from the day the cover changes, exactly as a lapse does.

The lease asks for something my insurer won't agree to. What now?

Get the wording changed rather than signing and hoping. 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 means what it would cost to build or buy the thing again today, including professional fees, demolition and removal, and the compliance upgrades a rebuild now has to meet. It matters because the co-insurance clause in most policies works two different ways depending on the size of the loss. On a partial loss it reduces the payout in proportion to how far short the sum insured was. On a total loss it reduces nothing: you receive the full sum insured, and if that figure is below the real cost, the shortfall is yours to fund. The arithmetic is on the co-insurance clause explained, and how to arrive at the right figure for a building is in the building sum insured guide.

Related content

Product pages: Commercial Building Insurance, Commercial Landlords Insurance, Business Interruption Insurance, Contract Works Insurance for Building Owners.

Who you are: For Business Owner Tenants, For Commercial Building Owners, For Business Owner Occupiers.

Guides: What Insurance Is Required on a Commercial Building?, How Much Does Commercial Landlord Insurance Cost?.

Tool: Underinsurance Risk Checker.