Who Pays for Building Insurance on a Commercial Property?
Quick answerThe owner takes out the building insurance, because the owner is the one who loses the building. Who funds the premium is set by the lease, and commercial leases commonly pass it to the tenant as an outgoing. To know which covers your lease asks each side to hold, send us the lease.
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Many leases do make the landlord promise to insure. In three Queensland commercial leases we hold, none does.
Does the landlord or the tenant pay for building insurance?
Quick answerThe owner holds the policy, and the insurer pays the owner after an insured loss. The lease decides whether the owner then recovers the premium from the tenant. Paying that premium, directly or through outgoings, never moves the policy into the tenant's name.
Outgoings are the running costs of owning a property that a lease lets the owner pass on: council rates, water, land tax, body corporate levies and building insurance are the usual ones. Paying an outgoing means repaying the owner for a cost the owner has already paid. It does not hand you the building, the policy or the right to claim.
Real leases show how thin that arrangement can be. We hold three Queensland commercial leases that we have read in full. In the two covering standalone buildings, the only place the lease names insurance of the building itself is the definition of outgoings, as a cost the landlord may recover. None of the three contains a promise by the landlord to insure the building. Many leases do carry that promise. These three do not.
All three also say that nothing in the lease obliges the landlord to repair or rebuild after damage. Read together, that means a lease can let the landlord recover the building premium through outgoings without ever requiring the building to come back. In these leases the tenant gets two things instead. Rent stops while the premises cannot be used. The tenant can also walk away if repairs are not done within three months, or such further time as the landlord reasonably requires. The detail is on what is in the insurance clause of a commercial lease.
On a gross lease the rent already includes the running costs; on a net lease the tenant pays outgoings on top, commonly including building insurance. Agents use the labels loosely, so the outgoings clause in your own lease is the one that counts.
If I pay for the building insurance, can I claim on it?
Quick answerGenerally not. The policy is a contract between the owner and the insurer, and funding it does not make you a party to it. Your fitout, stock and equipment generally come back only from a policy in your own name, and so does lost trading, through business interruption cover.
If the roof blows off, the owner claims and the insurer pays the owner. The kitchen you installed, the stock on your shelves and the weeks you cannot trade are yours to insure. Being noted on the landlord's policy is not the same as being covered by it.
You can reasonably ask what you are funding: the certificate of currency, the sum insured and what the policy covers. In practice a certificate of currency is issued only once the premium is paid in full, which is what separates it from a certificate of insurance. Whether the owner has to show you, and in what form, is a lease question, and in some tenancies a statutory one.
Paying the landlord's premium but holding no policy of your own? That is the usual gap. When a tenant rings us, we start with what the business does and what you most need to protect, then recommend what to quote. Ring 07 3292 1111.
Who insures what: the landlord and tenant split
Quick answerAs a general pattern the owner insures the building, the loss of rent and their own liability. The tenant insures their fitout, stock and contents, their own liability and, in many leases, the glass. The lease overrides the pattern, and the middle rows below are where leases are most often quiet.
| The asset or exposure | Who usually insures it | Where it goes wrong |
|---|---|---|
| The building structure, roof, walls, slab | The owner. This one is not really negotiable. | A sum insured set years ago and never revisited |
| Landlord's fixtures and fittings the owner supplied | The owner | The tenant made to insure what the owner owns, which works until the tenant's policy will not respond |
| Tenant's fitout: the kitchen, flooring, partitions, signage | The tenant | Neither side insures it, each assuming the other had. The most common gap |
| Glass, shopfronts and internal glazing | Commonly the tenant in retail, sometimes the owner | Both sides insure it and pay twice, or neither does |
| Plant such as air conditioning, hot water and lifts | The owner usually replaces, the tenant often services | A failed unit falls between servicing and replacing |
| Tenant's stock, equipment and contents | The tenant | Stock underinsured, or seasonal peaks not declared |
| Loss of rent | The owner | A figure that leaves out the outgoings the owner keeps paying during a rebuild |
| Owner's liability for the property, common areas, car parks, stairwells | The owner | Assuming the tenant's public liability also protects the owner |
| Tenant's liability for their own business | The tenant | A lease minimum treated as a sensible limit rather than a floor |
| Make good at the end of the lease | Neither, usually. It is a lease obligation, not an insured event | An owner budgeting for it as if insurance will help |
Only the top row follows ownership rather than agreement; everything below it is a drafting choice made in the lease.
We read the nine business pack wordings we place through the Steadfast Client Trading Platform side by side in September 2026. On all nine, the owner's fixtures, fittings, floor coverings, plumbing and wiring sit inside the building cover. Furniture or appliances an owner supplies to a tenant are not named in it, so they need to be on the schedule as contents. On all nine, loss of rent sits in the business interruption section, not the building section. It is there only if a rent item is on the schedule. How to size it is on loss of rent insurance for commercial property.
Can a tenant insure the landlord's building? The policy belongs to whoever the insurer contracts with, normally the owner, whoever funds it. If your lease asks you to arrange the building cover, read that clause closely before you buy anything. The sum insured stays the owner's call, because the owner carries any shortfall, and the policy should name the legal owner on the title: a person, a trust, a company or a self managed super fund.
What if the lease says nothing about insurance? Silence creates no cover and no obligation. The loss falls on whoever owned the damaged asset, which is usually the tenant, and usually the fitout, and there is no contract to recover the gap afterwards. A clause that says only "the tenant shall pay the landlord's insurance" settles who funds the premium and nothing else. The fix costs nothing: before anything goes wrong, confirm by email who insures the fitout, who insures the glass and what the building sum insured is.
Owners: see the commercial landlord insurance guide. Tenants: start at For Business Owner Tenants. Where your lease puts the glass on you, it is generally inexpensive cover to add.
What we check when you send us the lease's insurance clause
Quick answerWe do not insist on seeing the lease. When a client sends it, we read the insurance clause to work out which covers our client has to hold, then check a policy is in place that answers it. We do not give a view on what a lease clause means legally.
- The insured name. On the building policy, it should be the legal owner on the title.
- Which covers the clause asks for. Usually some mix of property, glass, business interruption, air conditioning breakdown and liability.
- Who insures the fitout, and which fitout.
- Glass and plant. Which of the two the clause puts on each side.
- The loss of rent figure, for an owner.
- The liability limit the lease asks of the tenant.
- Whether a policy is in place that answers it, and the certificate of currency the other side can rely on.
Want to know which covers your lease asks you to hold? Send us the insurance clause, or ring 07 3292 1111, and we will tell you. Arranging or amending those covers is generally same day or next business day work. Most of our clients are in Queensland, New South Wales and Victoria, and we work with businesses in every state.
How much of the premium can a landlord pass on?
Quick answerThe outgoings clause decides. Some leases pass on the whole building premium and some a defined share. Some cap what can be recovered in a year, and some leave particular items out. Retail tenancies carry rules of their own on top.
Read the outgoings clause for four things.
- What is on the list. Whether building insurance is named on it at all.
- Which insurance. It can sweep in loss of rent and the owner's liability policy: three different premiums.
- How the share is worked out. Usually the whole premium in a single tenancy building, a share where there are several tenants.
- A cap or an estimate. Some leases cap increases; some estimate and reconcile after the year.
The retail rules, and where they apply, are on does a retail lease change any of this? Tax is covered in Is Commercial Property Insurance Tax Deductible?
How is the premium split when a building has several tenants?
Quick answerThe owner still holds one policy over the building, and the lease decides each tenant's share. The catch is that the riskiest tenancy drives the price. An even split usually means the low risk tenants pay part of the high risk one's cost.
Take an industrial duplex with a mechanic on one side and an office on the other. It is one policy, but a workshop with hot work, oils and vehicles is a very different fire risk from a room full of desks. There is no single legally correct split. It can go by floor area, simple but blind to risk; by risk, fairer but harder to work out; a hybrid; or whatever a well drafted lease already says. Set the method before the tenant signs, not when the invoice arrives.
When one tenant changes what they do, the owner is exposed first. We have seen a landlord let a tattoo parlour into a five-tenancy strip of shops. The insurer holding the building declined to carry on, and we had to place the cover with a specialist underwriting agency for a premium of about $22,000, against about $9,000 before. The lease was already signed, so the landlord was stuck with it. It moves the other way too: when a retail tenant in a standalone building was replaced by a professional services office, the premium fell from about $4,000 a year to about $3,000. Those are two buildings, not a price guide, and the only way to know your number is to get a quote against your actual risk. Many leases make a tenant whose use pushes up the premium pay that increase, and the leases we hold do. On the policy side, all nine business pack wordings we read carry a tenants' actions condition. If a tenant breaks a policy condition without the owner's consent, the owner keeps their cover. The owner has to act reasonably once they know, tell the insurer and pay any reasonable extra premium. So the owner's first job is a phone call to their broker. The next is a call to the other tenants, before the change shows up on their statements.
The split invoice. Where an owner wants it, we can issue one premium invoice per tenant and work out the rate for each occupation by hand rather than by floor area. In our experience it is a very rare request. It is not a legal ruling on apportionment: the lease still decides what each tenant owes, and the policy stays in the owner's name.
Why is the building so often insured for too little, and who carries the gap?
Quick answerIn our experience the great majority of commercial landlords we see are underinsured, on gross and net leases alike. It is rarely a decision. Most owners simply have no current idea what their building would cost to rebuild. Whoever funds the premium, the shortfall at claim time is the owner's.
The pressure we do see comes from the other side of the lease. A tenant who funds the premium through outgoings has every reason to want it lower. Tenants ring us regularly trying to get the building insurance cheaper, and some ask for the building to be insured for less. The building is not their asset, so the shortfall would not be their loss. That is why the rebuild figure is the owner's decision to make on evidence. When a tenant asks us to quote the landlord's building, we may do the quote, but only with a named contact for the landlord and the landlord's signed confirmation of their consent and that the answers are accurate. We make it clear to the tenant that we do not act for them.
All nine business pack wordings we read carry an underinsurance clause that tests the amount insured against 80 per cent of full value, at the start of the policy year. Raising the figure halfway through the year does not rescue one that was already short at renewal. A co-insurance or average clause can reduce a partial claim when the insured amount falls below the level required by the wording. On a total loss, the amount available under the policy may be insufficient to rebuild. How the nine wordings work the test differently is in The Co-Insurance Clause.
Own a leased building and not sure when the rebuild figure was last checked? We commission a desktop building replacement valuation at no cost to you, for our purposes as your broker, to inform the advice we give you. Ring 07 3292 1111.
FAQ
Who pays the excess when the landlord claims on the building?
Often the tenant, under the lease rather than the policy. Many clauses tie it to the tenant's fault. In the leases we hold there is no fault test at all. The detail is on who pays the excess on the landlord's insurance claim.
Related content
Commercial Building Insurance, Commercial Property Insurance, Commercial Strata Insurance, Property Owners Liability, Underinsurance Risk Checker.