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. It also makes you pay any increase your 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.

A tenant's breach does not automatically end the landlord's cover. Some policies still protect the landlord for a loss the policy otherwise covers, provided they did not agree to the breach and act as required once they know about it. Depending on the policy, that can include getting the tenant to comply, notifying the insurer and agreeing to an extra premium. Tell your landlord promptly so they can take those steps.

The premium clause can reach you before any claim does. A trade that cooks can multiply the landlord's building premium, and some trades are harder again to insure. The lease can put that increase on you. A real change of trade, and what it did to a building's premium, is in our guide to who pays building insurance on a commercial property.

If something you did spoils the landlord's claim, what do you end up paying?

Up to three bills, each from a different part of the lease.

• The excess. Some leases make you reimburse the landlord's excess, sometimes only where you caused the damage. Retail-tenancy rules can restrict that. In Queensland, a retail shop lease cannot pass the landlord's insurance excess on to you as an outgoing. Who pays the excess on the landlord's insurance claim has the detail.
• The rent relief. Many leases stop the rent while damage makes the premises unusable, and cut it while they are only partly usable. In the leases we hold, that relief falls away where your negligence, default or wilful act caused or contributed to the damage. It also falls away where the landlord's insurer refuses or cuts the claim because of something you did.
• The repair. In the leases we hold, if the landlord's insurer won't pay for a repair because of something you, your staff or your visitors did or failed to do, the repair is yours.

Do you have to pay for the air conditioning service, and what if you skip it?

In many leases it's you. The landlord often doesn't follow it up, so nothing reminds you until something breaks.

In the leases we hold, the tenant services the fire equipment at least every six months. Where there is air conditioning, the tenant also keeps an approved contractor servicing it on the same cycle, with written proof when the landlord asks. Letting either contract lapse is one of the named triggers of the tenant's indemnity. That is the promise in the lease to cover the landlord's loss.

Can running your business damage the landlord's building?

Normal trading can do it without you noticing. Say you run a cafe and fit 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. Your lease may make you responsible for that repair. It's gradual damage, the kind property policies are least likely to pay for. Before you install anything like it, tell the landlord and check your lease's repair clause.

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

Yes. Tell the landlord before the change happens, and let them tell their insurer. An insurer prices a policy 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. The insurer wasn't told. That's a disclosure problem for the landlord, and a change of use may breach your lease if it has not been approved. Insurers can also read your website at renewal, so what it says you do should match what the landlord has told them.

Some policies require the owner to notify the insurer when the tenant or the building's use changes. If the insurer isn't told, a claim can be refused or cut back. How an insurer treats a change of use in an industrial unit is on industrial building insurance.

A fit-out or building work follows the same order. The building policies we place need the insurer told before alterations or building work begin, so your landlord needs your plans before the builder arrives, and your builder should hold its own contractor public liability insurance. A tenant is rarely shown the landlord's policy, so ask your landlord in writing what conditions their insurer has set.

What happens if you leave the premises empty?

Closing early, or leaving the premises idle for months, can change the landlord's cover. On most of the policies we place, cover for fire, storm, water damage, malicious damage and theft stops once a building has been empty for 90 days in a row, unless the insurer agrees in writing. Some of these policies also start the clock once the building has no tenant, so the landlord needs your move-out date to know when it starts.

How a landlord covers a building empty between tenants is on commercial landlords insurance.

If the building is damaged, what covers your side of it?

Your own policy, not the landlord's. The landlord's building cover pays to put the building right. Your contents, stock and lost profits need cover of your own, and so does any fit-out your lease makes yours.

Usually the building section covers the owner's fixtures, floor coverings, plant, plumbing and wiring. Contents covers what belongs to you or is your responsibility. Your lease may make you responsible for insuring the fit-out, but that does not tell you which policy covers it. Read the policy definitions and schedule too. Otherwise, each side can assume the other has arranged cover and leave an item uninsured. If your lease puts the glass on you, that cover is yours to hold as well, and glass cover is generally inexpensive.

Lost trade needs business interruption, an optional section of your own business insurance. It can pay towards the income you lose while you can't trade, where the damage is a claim the policy pays or accepts. It pays for the period you chose on the schedule and no longer. Set that period against how long a rebuild of your premises would really take.

What the lease's insurance clause asks you to hold yourself is in commercial lease insurance requirements.

Frequently asked questions