Written by William Paull
Co-Founder & Account Director
On this page
- What does Australian law actually require?
- What does your lender require?
- What does your lease require?
- What does a body corporate require?
- What is required, and what is merely sensible?
- Why can you meet every requirement and still be underinsured?
- What does a broker need when someone has given you a deadline?
- FAQ
What does Australian law actually require?
The insurances the law does compel attach to activities rather than assets: workers compensation the moment you employ someone, and injury cover bundled into vehicle registration. Some occupational licences carry their own. Owning a building triggers none of it, unless the building sits in a strata or community titles scheme.
Workers compensation is arranged through your state or territory scheme, not bought from a broker. We signpost it on our business insurance page rather than sell it.
Work health and safety is a duty, not an insurance requirement. The person with management or control of a workplace owes a duty to make it safe, not to insure it. Insurance answers the injured person's civil claim. Whether a penalty can be insured depends on your state, answered on If a subcontractor is hurt on your job, can you be held liable?. A building owner can be prosecuted over a hazard on the property, as Property Owners Liability explains.
What does your lender require?
A lender's requirements come from your loan contract, not from the law, and they are usually stricter. Typically: the building insured for its full replacement value, the lender noted on the policy, and evidence of cover at settlement and every renewal, for the life of the loan.
What the bank makes you insure, and in whose name, is set out in What building insurance does a bank require before it settles a commercial property loan?. That guide also covers when you can get the certificate of currency for settlement, and what a lapse or a short claim does to the loan. What the building policy itself covers is on commercial building insurance.
What does your lease require?
A lease is a contract, so it can require more than the law does, and it usually does. A lease commonly obliges the owner to keep the building insured and reinstate it after damage, and the tenant to carry a public liability limit, glass cover, and sometimes business interruption.
What the lease requires of you as the owner. Many leases go beyond keeping the building insured: specified perils, cover current for the whole term, evidence if the tenant asks, and reinstatement if the premises are damaged. Reinstatement after damage is different from make good at the end of a term. Reinstatement turns your sum insured from a financial decision into a contractual one. If the policy pays less than the rebuild costs, the shortfall sits against an obligation you owe your tenant, while the rent has stopped.
What the lease requires of your tenant is set out on For Business Owner Tenants.
Who pays is a separate question. The owner holds the policy, and the lease decides who funds it, usually the tenant through outgoings. Funding a policy is not the same as being covered by it. That point, and the extra layer for retail shop tenancies in several states, is on Who pays for building insurance on a commercial property?.
What does a body corporate require?
In a strata scheme the duty to insure is the body corporate's, not yours, and strata is the one place Australian law really does compel building insurance. In Queensland, whether the scheme insures your building turns on how it was subdivided.
Building format or volumetric format plan. Most multi-tenanted commercial buildings are on a building format plan, and a commercial lot in a mixed-use tower is commonly on a volumetric one. The body corporate must insure each building for full replacement value, and must get an independent valuation at least every five years.
Standard format plan with detached buildings. A good many industrial estates and small commercial parks are on this plan, and there is no compulsory body corporate building cover. The body corporate may run a voluntary insurance scheme, taking part is optional, and the building is the lot owner's to insure. Check which plan your scheme is on.
Other states differ. In New South Wales an owners corporation must insure the building whatever the subdivision. Where the body corporate has to insure a building, the five-yearly valuation applies in Queensland and Victoria but not New South Wales. The minimum public liability over common property is $10 million for a single event in Queensland and New South Wales, and $20 million in Victoria.
The scheme's duty stops at your lot. Your fitout, your contents, and your own liability as lot owner are not in the body corporate's policy. The rent you lose if the lot cannot be used is the one it does reach, and only up to a cap: rent above that cap is yours too. Nothing legally requires a lot owner to insure any of it, which is why it gets left. What the Queensland modules leave out of the insured building, and what that costs, is on Commercial Strata Insurance. The scheme's sum insured is also a number somebody nominated at a point in time. A lot owner is entitled to ask whether the valuation is current, but almost nobody does.
What is required, and what is merely sensible?
Only one cover is ever required of a commercial building owner: the building itself, by a lender or a lease rather than by law. Every other cover is optional in the strict sense and routine in practice, because those covers decide whether you can hold the building through a bad year rather than just rebuild it.
| Cover | Is it ever required? | Who requires it, when it is required | Why owners carry it anyway |
|---|---|---|---|
| The building itself | Yes, in practice | A lender, as a loan condition. A lease, as a term. Never by statute | It is the asset. Nothing else on the list matters if this one is wrong |
| Loss of rent | Rarely required, occasionally specified in a loan facility | Some lenders specify a minimum period; most say nothing | The rent stops on the day of the fire and the loan does not. A rebuild is measured in months, not weeks |
| Property owners liability | Sometimes, where a lease or a contract names a limit for the owner rather than the tenant | A lease, a licence, a permit, a principal contractor | Somebody hurt on your property sues the owner. A tenant's liability policy is bought to protect the tenant, and it does not defend you |
| Glass | Almost never required of the owner. Commonly imposed on the tenant by the lease | The lease decides which side carries it | Shopfront glass is expensive, breaks often, and is the item leases are least clear about |
| Machinery and equipment breakdown | Not required | Nobody | Lifts, air conditioning, and hot water plant fail without any insured damage having happened, and a failed lift can empty a building |
| Business interruption, for an owner-occupier | Not required of the owner. Sometimes required of a tenant by the lease | The lease, on the tenant's side | It replaces the trading income you lose while you cannot use the premises. A building policy rebuilds the building and stops there |
| Debris removal, demolition, and professional fees | Not separately required, and commonly assumed to be included | Nobody asks. The policy either allows for it or it does not | These are real rebuild costs. If the sum insured does not account for them, the shortfall shows up at the worst moment |
| The right sum insured | Never required by anyone, in any document | Nobody, and that is the whole problem | It is the single number that decides whether any of the above actually works |
The covers you are required to carry protect somebody else. Nobody sends you a letter about the ones that decide whether you still have a business after a fire.
Why can you meet every requirement and still be underinsured?
Every requirement on this page can be satisfied by a policy that would not rebuild your building. A lender wants evidence of cover, not a correct rebuild figure, and a lease wants the building insured, not insured accurately. No one on the list above is checking the sum insured.
Most commercial building policies carry an underinsurance clause, sometimes called an average or co-insurance clause. If the sum insured is materially below the true rebuild cost, a partial loss can be reduced in proportion, and a total loss stops at the sum insured. How that calculation works, and what the law requires an insurer to have told you before it can rely on the clause, is on the co-insurance clause explained.
In our experience the great majority of commercial landlords we see are underinsured, because owners have no current idea what a building costs to rebuild now. When we look at a building, we commission a rebuild figure for it at no cost to you, for our purposes as your broker, to inform the advice we give you. It's a desktop building replacement estimate, so it's worked out from aerial and street imagery rather than a site visit. The fuller picture is in Underinsurance: the biggest risk to commercial building owners.
What does a broker need when someone has given you a deadline?
When a bank, a landlord, a body corporate, or a principal contractor has named a date, a broker needs a short list. Having that list ready gets you a straight answer.
The clause itself, from the loan document, the lease, or the contract, not a summary of it. The clause decides what is needed, and it is usually one paragraph.
The legal entity on the title: a trust, a company, a super fund, or an individual, and the trustee's name if there is one.
The building and what happens in it: address, approximate floor area, construction, roughly the year built, and what the occupants do. Occupancy moves a commercial building premium more than most owners expect.
Any current policy schedule and certificate.
Who else needs to be named: the lender, an equipment financier, a head lessor, a principal. A notation that does not do what the clause asked for is functionally the same as no notation.
We read the insurance clause and set the covers to match what it actually says, so the certificate we issue satisfies it. Reading the clause is a half hour job almost nobody does, and it catches the mismatches on this page before a claim tests them. We are brokers, not lawyers, so the rest of the document is a question for your solicitor.
Most of our clients are in Queensland, New South Wales and Victoria, and we work with businesses in every state.
FAQ
Is commercial building insurance a legal requirement in Australia?
No general law requires it, but in practice you rarely get the choice: a lender, a lease, or, in a strata scheme, the body corporate's own statutory duty usually requires it for you. Consolidated Insurance Brokers reads the loan condition, the lease, or the scheme's obligations that apply to your building and tells you plainly what they ask of you.
Do I have to insure a commercial building I own outright, with no loan and no tenant?
No: with no loan, no lease and no body corporate, nobody has a contractual right to require it and no statute does. Consolidated Insurance Brokers helps you look past the legal question to the real one: could you fund a rebuild from your own resources if the building burned down tomorrow, and keep paying the rates, the loan on the next asset, and the lost income meanwhile?
My bank wants the building insured for full replacement value. Is that what I paid for it?
Almost never, and Consolidated Insurance Brokers helps you set the building sum insured on the rebuild figure rather than on the price you paid. A purchase price and a market valuation both include the land, but full replacement value is a construction figure: what it actually costs to rebuild. See our building sum insured guide.
My bank has asked for a sum insured higher than the rebuild cost. Do I have to insure for that?
It happens, usually with a settlement date already booked. Consolidated Insurance Brokers gives you the rebuild figure in writing, so you can talk to your lender with two numbers in front of you. We do not tell you what to agree with the bank. Your options are in our guide to bank insurance requirements.
Why does my lender want a certificate of currency every year and not just at settlement?
Because the loan obligation is continuous, not a settlement formality: the lender's security runs for the life of the loan, so evidence of cover is refreshed at every renewal. Consolidated Insurance Brokers sets out what a certificate of currency contains in our insurance terms glossary, so you know what your lender is looking at each year.
What happens if the insurance lapses on a mortgaged commercial building?
A loss during the lapse is uninsured and entirely yours, and the lapse itself generally breaches the loan. Consolidated Insurance Brokers reads those loan conditions with you. What a lender can do about a lapse is in our guide to bank insurance requirements.
The body corporate insures the building. What am I still required to insure as a lot owner?
Where the body corporate insures the building, nothing further is legally required of you, but fitout, contents, liability, and rent above the scheme's cap stay yours. Consolidated Insurance Brokers sets out what the scheme's policy leaves to the lot owner on our Commercial Strata Insurance page. Check first that the scheme insures your building: in Queensland a detached building on a standard format plan may not be.
Is public liability insurance required on a commercial building?
Not by any single law. It becomes required in practice when a lease, a contract, a council permit, or a licence condition asks for it, which covers most owners of buildings other people walk into, and Consolidated Insurance Brokers reads that clause to tell you what it requires. Our public liability insurance page covers the legal question, and Property Owners Liability why a tenant's policy does not cover the owner.
Someone has asked me for proof of insurance and I have a deadline. What do you need from me?
The clause that is asking for it, the exact legal entity that owns the building, the address and what happens inside it, any current policy schedule, and the name of anyone who needs to be noted on the policy. With those in hand, Consolidated Insurance Brokers can usually keep the conversation short. Call us on 07 3292 1111 and an account manager will take it from there.