What can a commercial tenant do that voids the landlord's insurance?

What does a commercial lease say a tenant must not do?

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. 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 building policy is the landlord's, so it's easy to think it isn't your problem. It is. What you do in the premises can cost the landlord's claim, and the lease can pass that bill to you.

Does the maintenance clause in a commercial lease make you service the air conditioning?

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. In the three 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. It 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.

Can running your business damage the landlord's building?

Normal trading can do it, without the tenant realising. 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.

Do you have to tell the landlord before you change how you use the premises?

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.

Some of the wordings we place make the owner tell the insurer when a tenant or its use changes, and a claim can be refused or cut back if the insurer isn't told. What an undisclosed change of occupancy can cost an owner is on our industrial building insurance page.

Who makes sure a contractor's hot work is done safely?

Some wordings carry a hot work condition: welding, grinding or torch work has to follow the Australian Standard for welding fire precautions, or a fire it starts can cost the claim. The tenant arranging the contractor has to make that happen. The contractor's own liability cover, and the hot work terms on its schedule, are on contractor public liability insurance.

What happens if you leave the premises empty?

On the wordings we place, cover is restricted once a building has been unoccupied beyond a set period, commonly 60-90 consecutive days. A tenant moving out early needs to tell the insurer. The way to do it is the same as a change of use: through the landlord, before you go.

If you own the building and it's sitting vacant between tenants, how that cover works is on commercial landlords insurance.

How does the landlord's insurance claim end up costing the tenant?

The biggest cost of conduct isn't in the insurance clause at all. In the 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 in who pays the excess on the landlord's insurance claim. The rent abatement: all three abate the rent while damage makes the premises unusable, in proportion while they're only partly usable. There's an exit for either side where the landlord notifies that repair is impractical. The tenant also has an exit 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. It sits in the maintenance clause rather than the insurance clause.

You aren't a party to any of those three decisions, and you never see the policy they turn on. It's also why a lapsed six-monthly service contract matters: it's exactly the neglect all three hinge on. What your own clause says about abatement is your solicitor's to read, not ours.

What should a tenant ask the landlord?

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. You can't keep to a condition nobody has shown you, and a tenant is almost never shown the landlord's policy.

Then look after your own side. What the lease's insurance clause asks you to hold is in commercial lease insurance requirements. Your contents, fit-out, glass and public liability sit on your own business insurance. We read the insurance clause to work out which sections you need to hold. What a clause means is a question for your solicitor.

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