Written by William Paull
Co-Founder & Account Director
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What does your lender require?
Typically the building insured for full replacement value, the lender noted on the policy, and a certificate of currency at settlement and at every renewal while the loan runs. The loan contract sets the detail.
A certificate of currency records your cover on the day it is issued. The schedule, the wording and any endorsements, the changes added to the policy, carry the full terms. We release yours once cover is in force and we have received your premium, including through premium funding once the funder's payment has arrived.
When reviewing existing cover, we often find a missing lender or an old lender left after refinancing. What a bank requires before it settles a commercial property loan explains the notation and the effect of a lapse or short claim. Commercial building insurance explains cover for the building itself.
What should you have ready for a broker?
The document asking for cover. Have the actual insurance clause ready so we can discuss what is required.
Who the policy needs to protect: Tell us the person or entity holding the title, including the trustee where relevant. Ownership and loan documents help establish the correct insured names.
The building and what happens in it: Have the address, approximate floor area, construction, age and occupants' activities ready. What happens inside can materially affect the premium.
Any policy already in place, so we can see what it covers today.
Who else needs to be named: Include the lender and anyone else the clause names, such as a head lessor. The notation needs to match the capacity required, not just the name.
The lease's damage and destruction clause, and what a breach of any clause would cost you, are questions for your solicitor.
What does your lease require?
A lease is a contract, and its insurance clause sets what each side must insure. Many leases make the owner keep the building insured and rebuild it after damage, and the tenant carry public liability and glass cover. Others leave the building insurance inside the outgoings.
Check whether your lease obliges you to rebuild. The leases we hold do not, but others do. Where that duty applies, an insurance shortfall leaves you funding a rebuild owed to the tenant while rent has stopped. Check before setting the sum insured.
In the leases we hold, tenants insure public liability, glass and their own property. In our experience, commercial leases usually ask for $20 million in public liability cover; some ask for $10 million. The clause states what the tenant should hold; their policy shows what they bought. For Business Owner Tenants explains their side.
Who pays is separate. The owner holds the building policy; the lease decides whether the tenant funds it through outgoings. Who pays for building insurance on a commercial property explains that split.
What a commercial lease requires you to insure explains what a tenant's certificate proves and the difference between being noted and being insured.
Can you meet the requirements and still be underinsured?
A certificate confirms the cover arranged, not whether the sum insured would rebuild the building. Even a requirement for full replacement cover needs a sound rebuilding figure behind it.
On the business packs we place, the average clause uses an 80 per cent replacement-value test. Your wording sets the calculation, the figure tested at policy commencement and any small-claim exemption. Most pay up to 20 per cent above the sum insured after a total loss. You fund any rebuild cost left unpaid. The co-insurance clause explained works through the sums.
In our experience, the great majority of commercial landlords we see are underinsured. We commission a desktop building replacement estimate for you, free, using aerial and street imagery rather than a site visit. We commission it for our purposes as your broker, to inform the advice we give you. Underinsurance on commercial buildings explains how shortfalls develop.
What is required, and what is merely sensible?
Start with the cover your loan, lease or strata obligations require. Then consider what damage, lost income or liability you could afford to fund yourself.
| Cover | Who asks for it, and why an owner holds it |
|---|---|
| The building itself | Commonly required by a lender or lease to protect the building. |
| Loss of rent | Rarely required, though some lenders specify a period. Insured damage can stop rent while loan repayments continue. |
| Property owners liability | A lease, licence, permit or contract may set an owner's limit. An injury claim can name the owner as well as the tenant. |
| Glass | Almost never required of the owner. The lease decides which side carries it, commonly the tenant. |
| Machinery and equipment breakdown | Rarely required. Lifts, air conditioning and hot water plant fail with no insured damage. |
| Business interruption, for an owner-occupier | A lease may require it of the tenant. It protects the operating business's profits after insured damage interrupts trade. |
| Debris removal, demolition and professional fees | Seldom asked for, and owners commonly assume they are included. They are real rebuild costs. |
| The right sum insured | You set it, and a short figure can cut a serious claim on the building. |
On the policies we place, loss of rent needs a rent item on the schedule and responds after insured damage. Breakdown needs its own section. Most pay debris removal on top of the building figure, while professional fees need allowance within the rebuilding cover.
Your tenant's liability policy may cover you too. On some of the policies we place it does, but only where the lease makes the tenant insure you, and only for the tenancy.
Business insurance covers an occupier's contents and profits. Property Owners Liability explains claims against the owner, including one who does not trade there. Who carries the claim when a subcontractor is hurt addresses injuries to people working on the building.
What does the body corporate cover?
A scheme may already insure parts of your lot, and some liability policies protect lot owners too. In Queensland, the plan type determines whether body corporate building insurance is compulsory. Check the scheme's cover before relying on it.
In Queensland, a body corporate must insure buildings for full replacement value on building format and volumetric format plans. On a standard format plan, a detached building with no shared wall has no compulsory body corporate building cover. The body corporate may offer a voluntary scheme; you choose whether to join. If it does not insure your building, arrange your own cover. Other states have different rules.
On the strata policies we place, rent lost while the lot is unusable is covered only up to a cap. Commercial landlord insurance for your strata unit explains separate cover for the remaining exposure.
FAQ
Is commercial building insurance a legal requirement in Australia?
There is no general legal requirement, but strata laws, a loan or a lease can require cover. Consolidated Insurance Brokers helps you understand the requirements applying to your building.
Do I have to insure a commercial building I own outright, with no loan and no tenant?
Usually not, but check other applicable contracts or conditions. Without a loan, lease or body corporate requirement, consider whether you could fund rebuilding, ongoing rates and lost income yourself.
My bank wants the building insured for full replacement value. Is that what I paid for it?
They measure different things. Purchase price and market value include land; full replacement value is the cost of rebuilding. Our building sum insured guide explains the demolition, fees and construction costs to allow for.
My bank has asked for a sum insured higher than the rebuild cost. Do I have to insure for that?
You decide, though the bank can refuse settlement until your certificate shows its required figure. A higher sum insured does not increase payment beyond covered costs. First allow for demolition, fees and rising construction costs. We can provide a rebuild figure in writing for discussion with your lender. What a bank requires before it settles a commercial property loan explains the options.
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. We read the loan's insurance conditions with you.
The body corporate insures the building. What am I still required to insure as a lot owner?
Check that the scheme insures your building at all. Where it does, fit-out, contents, rent above its cap and your own liability may still need separate cover. Some scheme policies include parts of the lot or extend liability to owners. Commercial Strata Insurance explains the differences.
Is public liability insurance required on a commercial building?
A lease, contract, permit or licence may require it. Check the requirements applying to your building. Our public liability insurance page explains the legal question; Property Owners Liability explains cover for a claim against you as the owner.