Written by William Paull
Co-Founder & Account Director
On this page
- What is mixed-use building insurance?
- Who is responsible for insuring the building?
- Why an ordinary home policy and an ordinary business policy each leave a gap
- The residential tenants upstairs: three things that stay with the owner
- One building, one rebuild figure
- What does mixed-use building insurance cost?
- What an insurer asks about a mixed-use building
- What goes wrong most often on a mixed-use building
- What a claim looks like in a mixed-use building
- FAQ
What is mixed-use building insurance?
A mixed-use building is one structure with more than one use. The insurers we place with have no separate mixed-use product: the building goes onto a commercial or a strata policy, and the mix is priced inside it.
A whole building on one title takes commercial property insurance. Who pays the premium depends on the lease.
Who is responsible for insuring the building?
In a scheme, get the plan format from the body corporate or manager, plus its certificate of currency (the insurer's proof the policy is in force) and schedule. If only common property is insured, establish who insures the buildings.
Whole building on one title
You insure the shops and flats as one structure, with no body corporate or levy. We use one building policy and sum insured, listing every tenancy.
The mixed-use building we insure most often is a whole building on one title with two to five tenancies, and it goes on commercial building insurance.
Glass and air conditioning. We can help match your cover to the lease's insurance clauses, including the shopfront glass and air conditioning. If the lease leaves the air conditioning with you, it needs breakdown cover.
Lot on a building or volumetric format plan
Most multi-tenanted commercial buildings use a building format plan: floors, walls and ceilings mark each lot. Commercial lots in mixed-use towers are often on volumetric format plans (parcels of air space). On either, the Queensland body corporate must insure the building for full replacement value, as far as it forms part of the scheme.
Your own cover needs to account for your fit-out, contents, plant serving only your lot, your liability and rental income above the scheme's cap.
On the commercial strata wordings we place, lot-owner fit-out cover is limited and all lots share the rent cap. If you let the unit, see commercial landlord insurance for your strata unit.
Lot on a standard format plan
A standard format plan divides the land, as in small commercial parks and converted sites. In a Queensland basic scheme, detached buildings have no compulsory body corporate building cover; in practice, each owner insures theirs. The body corporate must insure buildings sharing a wall with one on an adjoining lot for full replacement value. Whatever the plan format, every Queensland body corporate must insure common property and hold public risk cover (liability cover for injury or damage to others).
Why an ordinary home policy and an ordinary business policy each leave a gap
Tell the business insurer about the flats above the shop. People sleeping upstairs change the fire and liability risk.
In our experience, residential insurers will not take a building designated commercial or containing a commercial tenancy. It goes on business insurance, with the residential use declared. Residential landlord insurance is for purely residential property.
The residential tenants upstairs: three things that stay with the owner
Shared areas. An injury on a stair, entry, bin area or car park can lead to a claim against the building owner. Your tenant's liability policy mainly protects their business. Do not assume it covers a claim against you as the building owner. Your property owners liability may respond, depending on the circumstances and terms. In a strata scheme, stairs are usually common property, so the body corporate's cover matters too.
Rent from the shops and flats. A fire that makes the building unusable can stop both. On the business policies we place, loss of rent must be on the schedule. The indemnity period is how long rent cover can pay while you rebuild and re-let. We recommend at least 18 months, often 24 or 36 depending on the owner. You choose.
We ask for each tenant's annual rent excluding GST but including outgoings: gross and net rent can differ greatly. Without a rent update at renewal, we generally increase the figure by around four per cent, as rents usually rise. The landlord guide explains your cover; a business's profits cover is a separate decision.
Your contents. On the business policies we place, your floor coverings, plant, wiring and fixtures sit in building cover. Appliances and furniture you supply in a let flat are contents and need their own schedule entry.
One building, one rebuild figure
Allow for demolition, debris removal, professional fees, current building standards and rising costs during rebuilding. The shops' and flats' sale values measure market value, not rebuild cost.
The rebuilt building need not have the same mix: flats could become offices. We have not seen an insurer check your figure at purchase. It is up to you to establish the rebuild cost.
Whole-building business policies. Insuring below 80 per cent of rebuild cost can reduce a partial claim on the business policies we arrange. The policy sets the calculation and any small-claim exemption. After a total loss, you fund what the policy does not pay towards the rebuild. See the co-insurance calculation and underinsurance guide.
On several of the wordings we place, the underinsurance penalty can be waived if the valuation and sum insured meet the policy's conditions.
Strata schemes. On the commercial strata wordings we place, a partial loss is not reduced by an average formula. If the sum insured runs out, owners fund the gap, commonly through a special levy by lot entitlement (each lot's share of scheme costs). Our desktop building replacement estimate helps test the figure. It is worked out from aerial and street imagery without a site visit and does not replace a valuation the law requires of a scheme.
What does mixed-use building insurance cost?
The ground-floor trade is one of the biggest influences on your premium, alongside the building sum insured and covers. At renewal, check what changed, including the rent figure. Some trades need specialist underwriters and can cost much more to insure. Our building cost guide shows what Brisbane buildings we insure have paid and explains the other price factors.
What an insurer asks about a mixed-use building
Each tenant's trade. An office, shop and food business pose different risks. Have each tenant's activities ready, from the lease or tenancy schedule.
Cooking. In our experience, cooking below flats makes the building several times more expensive to insure. Insurers tend to look at the equipment, extraction, professional duct cleaning and fire suppression. Be ready to say who cleans the ductwork and how often.
Trading hours and vacancy. Give each tenant's hours and identify empty areas. Late trading or an empty shop beneath occupied flats changes the risk and the insurer's requirements.
Construction and age. We see insurers focus on different things: roofs, or wiring and switchboards. Some want photographs. Have the wall, floor and roof construction, building age and dates of electrical work ready.
An empty tenancy. On most policies we place, fire, storm, water damage, malicious damage and theft cover stops once the building has been empty for 90 consecutive days, unless the insurer agrees in writing. Most do not treat the building as empty while flats remain let, but at least one does when half or more of its tenancies are vacant. Tell us, or your broker, the day a tenancy goes empty.
What goes wrong most often on a mixed-use building
Undeclared flats. We often see flats left off the insurance, increasingly with short-stay tenants. Not every insurer accepts residential use; several require most floor space to be commercial. If an insurer would not have offered cover with the full facts, it can refuse the claim. Declare both uses.
A change to cooking. A cafe without a deep fryer adds a benchtop fryer. Tell the insurer the week it happens, through us or your broker.
Tenants missing from the schedule. Despite insurers' recent improvements, many schedules still omit tenants. That can leave rent and rebuild figures unreviewed at renewal.
Before signing a lease. Allow for the insurance premium in rent or outgoings. A gross lease leaves any increase with you.
An old rebuild figure. Building costs have risen since 2018; a figure untouched since then is likely to leave you short. In Queensland, a body corporate required to insure a building must obtain an independent full replacement value valuation at least every five years. Whole-building owners should also review the figure. A tenant paying the premium through outgoings may ask for less cover, but you fund the rebuild shortfall.
One tenant's claim shows what a short indemnity period costs, and your loss of rent period is the same choice. A water pipe burst inside an internal wall of a mixed-use building. The escaping water went through all the flooring and flooded the ground-floor shop, a beauty salon. It happened in February 2020. The salon was not back in its own shop until November 2021: the first repairs were not accepted, and the argument over them added months. The claim, about $110,000, was the tenant's, on the salon's own business policy. The salon's business interruption cover was set too low, with an indemnity period of only twelve months. That left the salon carrying the back end of a twenty-one month displacement itself, with no policy behind it. The building damage and the rent sat on the owner's side. Set your loss of rent period long enough to cover a dispute over repairs as well as the rebuild.
What a claim looks like in a mixed-use building
Suppose a kitchen fire guts the ground-floor takeaway after hours, leaves two flats above smoke damaged and unusable, and damages the stairwell and roof cavity. The building closes for months.
Whole-building owner. Your commercial property policy responds to building damage against one sum insured. If listed on the schedule, rent cover pays all three rents for your chosen period. The shop's policy covers fit-out, contents and stock, plus profits if selected. An injury during make-safe (emergency work to make the building safe) can lead to a claim against you.
Lot on a building format plan. The body corporate insures the structure, stairwell and roof cavity. Your policy covers your property inside the lot and rent above the scheme's cap.
Detached building on a standard format plan. There may be no scheme building policy. Do not leave that discovery until the insurer sends its loss adjuster (the person assessing the claim).
If the policy is one we look after, our specialist claims manager takes the claim to the insurer, with your broker still involved. The decision is the insurer's, and we press for what the policy and the evidence support.
FAQ
I bought a house that has been converted into a shop with a flat behind it. What do I insure it as?
As one building with two uses. Consolidated Insurance Brokers helps set one sum insured for rebuilding it as it stands. If the conversion created separate lots, the plan format decides who insures it.
A bank wants a certificate of currency before settlement on a mixed-use building. What does it need to say?
It confirms the building is insured and records the amount, period and lender's interest. We arrange it; check it against the loan conditions because lenders differ. Avoid using the lender's figure instead of rebuild cost, or omitting either use. Our guide covers what a bank requires before settlement.
My tenants upstairs are residential. Does that mean I need landlord insurance as well?
Sometimes. The building stays on one commercial policy. A residential landlord policy alongside it can cover the flat's loss of rent, rent default and contents you supplied, particularly for short-stay lets. It is never a second building policy.
My building is outside Queensland. Does the same split apply?
Not always. State law and the strata plan decide. A whole building on one title remains yours to insure wherever it stands. We arrange residential strata insurance in Queensland, Victoria, New South Wales, South Australia and Western Australia, on both plan types.