Written by William Paull
Co-Founder & Account Director
On this page
- Does an SMSF have to insure a commercial property it owns?
- What insurance does an SMSF-owned commercial property need?
- What if the fund leases the building to my own company?
- Whose name should the insurance be in if my SMSF owns the property?
- Does a fund loan change the insurance requirements?
- Quick answers
- Where to take it from here
Two things need care on a fund's building policy: the names on it and the sum insured. The names turn on who holds the title and whether the fund borrowed to buy. How the super and tax rules apply to your fund is a question for your own licensed SMSF adviser or accountant. We look after the insurance.
Does an SMSF have to insure a commercial property it owns?
No line in the super rules says "insure the building". Looking after the fund's assets is part of a trustee's job, though. A commercial building is usually one of the largest assets a fund holds. Where the fund borrowed to buy it, the lender will generally make insurance a condition of the loan as well.
What insurance does an SMSF-owned commercial property need?
A property held in your fund needs the same cover any commercial building owner needs.
- Building cover at replacement value. The sum insured should reflect what it would cost to rebuild today. A figure set when the fund bought the building may be well short of that now. See getting the sum insured right.
- Loss of rent, if the property is leased. We can read the insurance clauses of your lease and set the covers to match, including who insures the glass, the air conditioning and the fit-out. The rent figure on the policy should be this tenant's annual rent, excluding GST but including outgoings. Our commercial property owners page sets out how the lease shapes that figure. The indemnity period is the longest the policy will pay lost rent after insured damage, and you choose it to cover the repair and the re-letting. We recommend at least 18 months, and often 24 or even 36 depending on the client. The period is yours to choose, and the longer it is, the better position you are in at claim time.
- Property owners liability, covering the fund's exposure as the owner of the building. Your tenant's policy names your tenant, and any cover it extends to you as landlord may be limited. See property owners liability.
- Lot-owner cover, if the asset is a strata unit. The body corporate's policy does not reach everything the fund owns or earns, and the fitout and liability gaps are yours. On the wordings we place, a strata scheme's policy carries a capped loss of rent benefit for lot owners: a set limit, usually a percentage of the building sum insured, commonly paid until the lot is re-let after an insured loss. If your rent is worth more than that cap, the gap is yours to insure under your own landlord cover. See commercial landlord insurance for your strata unit.
MCG, a firm of quantity surveyors, found across its own valuations that buildings were underinsured by about 24% on average. For industrial property, its figure was 31%. On a fund's building, a shortfall like that comes out of your members' retirement savings.
A tenant who pays the premium through the outgoings may ask for the building to be insured for less, to bring the premium down. After a fire, the shortfall is still the fund's.
A building can sit empty between tenants. On the business packs we place, cover for fire, storm, water damage, malicious damage and theft stops once the building has been unoccupied for more than 90 days in a row, unless the insurer agrees to keep covering it. Most want that agreement in writing.
What if the fund leases the building to my own company?
If the building is damaged, the fund can lose its rent while your company loses its profits. Those are two separate losses to consider, even if you control both entities.
On the policies we use, loss of rent is paid only where it is on the schedule, and only after insured damage. If your company stops trading or stops paying the rent, that cover does not step in.
We arrange cover in the right names for the fund and for your company. How each is covered is your choice, and the quotes help you make it. Our commercial property insurance page sets out which parts of a building the owner insures and which the tenant does.
Whose name should the insurance be in if my SMSF owns the property?
The policy should name the entity that holds legal title to the building. For a fund's building there are two cases.
If the fund owns the property outright, the SMSF trustee holds title. The policy is named to the fund's trustee, whether that is a company or individual trustees (for example, Smith Holdings Pty Ltd as trustee for the Smith Super Fund).
If the fund bought the property with a loan, the legal title sits with a separate holding trust (also called a bare trust) under a limited recourse borrowing arrangement. The fund holds the beneficial interest. The policy names the bare trustee as the title holder and notes the lender's interest. The wordings we use also carry a clause that can protect a trustee's or a lender's interest in the property, but what triggers it differs from one policy to the next.
If the name on your schedule does not match the title, put it right before there is a claim.
Does a fund loan change the insurance requirements?
Yes, though the requirement comes from your lender. Your bank usually wants the building insured for full replacement cost, with its interest noted on the policy and shown on the certificate of currency.
Your bank will generally not settle until it holds that certificate (the insurer's confirmation that cover is in force) showing the sum insured it asked for. Our guide to the insurance a bank needs for a commercial loan covers the certificate and settlement.
Quick answers
Does the super law force an SMSF to insure its property?
Not in so many words. Looking after the fund's assets is part of a trustee's job, and a lender usually makes insurance a condition of the loan. Consolidated Insurance Brokers arranges the property cover; your licensed SMSF adviser can explain the fund's obligations.
Whose name does the policy go in?
The entity that holds legal title. That is the SMSF trustee, or the bare trustee where the fund bought through a bare trust with a mortgage, with the lender's interest noted. A policy in a member's own name, or in your operating company's name, does not match the title.
Is the premium tax deductible to the fund?
That is a question for your accountant, as the treatment can differ from one fund to the next.
My SMSF owns a strata unit. Is it any different?
The fund still needs its own lot-owner cover, and we arrange that cover in the title holder's name. The scheme policy carries a capped loss of rent benefit. Rent above the cap is the owner's to insure. That cover is set out under landlord insurance for a commercial strata unit.
Where to take it from here
Ring 07 3292 1111 to talk through your fund's building cover with a broker, whether the fund holds a policy now or is buying. We can go through the cover and the price together. A broker can also look at whose names belong on the policy, whether the sum insured would pay to rebuild and whether the loss of rent cover suits your lease. If you are not sure what a rebuild would cost today, ask us. We commission a desktop building replacement estimate for you, free.
This is general information about insuring a commercial property held in a self-managed super fund, not personal advice about your situation. Consolidated Insurance Brokers is licensed to advise on insurance; we are not licensed to give superannuation, SMSF-compliance or taxation advice, and nothing on this page is super or tax advice. Whether a particular policy or structure suits your fund depends on your own circumstances and the specific product's terms, which you should consider, alongside advice from your own licensed SMSF and taxation advisers, before deciding.