Written by William Paull
Co-Founder & Account Director
On this page
- Key points
- Does the landlord or the tenant pay for building insurance?
- If I pay for the building insurance, can I claim on it?
- Who insures what: the landlord and tenant split
- How much of the premium can a landlord pass on?
- How is the premium split when a building has several tenants?
- Why is the building so often insured for too little, and who carries the gap?
- FAQ
Key points
- The tenant's outgoings repay the owner's premium. The tenant's contents, stock and lost profits, and usually the fit-out, need a policy in the tenant's own name.
- The lease usually says who should insure the fit-out, the glass and the plant, but only the policies show who has.
- One tenant's change of trade can move the premium for the whole building, in either direction.
- A building insured for too little can leave the owner short at claim time, even when the tenant pays the premium through outgoings.
Does the landlord or the tenant pay for building insurance?
The owner normally holds the policy and receives the payment after an insured loss. The lease decides whether the tenant funds the premium through outgoings. Paying it does not put the policy in the tenant's name.
Outgoings are property running costs the lease allows the owner to recover, such as rates, water, body corporate levies and building insurance. Some leases include land tax, subject to retail-tenancy restrictions.
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.
A lease can pass on the premium without requiring the owner to insure or rebuild. The separate damage and destruction clause governs rent and termination after damage; ask your solicitor what it means. Commercial lease insurance requirements explains the insurance obligations.
If you own the building and lease it out, the covers you hold as the owner are on commercial landlord insurance. The commercial landlord insurance guide goes through them in full.
If I pay for the building insurance, can I claim on it?
Generally not. Paying the premium does not make you a party to the owner's insurance contract.
If the roof blows off, the owner claims for the building. Your own policy usually covers your fit-out, contents and stock, with lost profits requiring business interruption cover. Retail insurance and office insurance explain the tenant's side. Being noted as an interested party on the owner's policy records your interest; it does not insure your property.
The policy insuring the fit-out usually pays first. That insurer may then recover from the owner where the lease and law make the owner liable. Recovery can take a year or two.
Ask what you are funding: the sum insured, cover and certificate of currency. The certificate records cover when issued; the schedule, wording and endorsements contain the full terms. Your lease determines whether the owner must provide them.
Who insures what: the landlord and tenant split
The owner generally insures the building, rent and their liability. The tenant insures their fit-out, contents, stock and business liability, often glass too. Check the lease and policies, particularly where responsibilities overlap.
| The asset or exposure | Who usually insures it | Where it goes wrong |
|---|---|---|
| The building structure, roof, walls, slab | The owner | A sum insured set years ago and never revisited |
| Landlord's fixtures and fittings the owner supplied | The owner | The lease makes the tenant insure the owner's property, but the tenant's policy does not cover it |
| Tenant's fit-out: the kitchen, flooring, partitions, signage | The tenant | Neither side insures it, each assuming the other has |
| Glass, shopfronts and internal glazing | Commonly the tenant in retail, sometimes the owner | Both insure it, or neither does. Glass is generally inexpensive to add where the lease makes it the tenant's responsibility |
| Plant such as air conditioning, hot water and lifts | The owner usually replaces, the tenant often services | Servicing and replacement fall to different parties. If replacement is the owner's responsibility, check their breakdown cover and scheduled limit |
| 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 held without asking whether it suits the business |
A lease requiring insurance is no proof it was arranged. We help you establish what each side has covered and what still needs attention.
An injury caused by the building can lead to a claim against its owner. The tenant's insurance may not protect them. Property owners liability cover addresses that risk.
On the policies we place, the owner's fixtures, floor coverings, plumbing and wiring belong in the building cover. Furniture or appliances supplied to tenants need a contents item on the owner's schedule. Commercial property insurance explains the split. Loss of rent needs its own scheduled item under business interruption; our loss of rent guide explains the amount to insure.
If the lease asks you to arrange the owner's building insurance, check the requirement before buying. The insurer's contract must name everyone it protects, normally including the owner, who chooses the sum insured. For a trust or super fund, the ownership and loan documents establish the trustee's role and the names needed.
If the lease says nothing about insurance, establish who covers the fit-out and glass, and check the building sum insured. A clause saying the tenant pays the owner's insurance settles payment only. Responsibility for a loss also depends on ownership, its cause and legal duties.
Why is the building so often insured for too little, and who carries the gap?
In our experience, most commercial landlords we see are underinsured because they lack a current rebuilding figure. This affects gross and net leases alike. The owner funds any gap.
Tenants regularly ask us to lower the building premium, sometimes by reducing the sum insured. That may reduce their outgoings but leave the owner funding more of a rebuild.
On most of the policies we place, insuring below 80 per cent of rebuild cost can reduce a partial claim. The wording sets the calculation and any small-claim exemption. A total-loss payment can also fall short of the rebuild. The co-insurance clause explained works through both.
A current rebuilding estimate helps you check the figure before renewal. 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.
FAQ
Who pays the excess when the landlord claims on the building?
The lease may make the tenant pay the excess, sometimes only if they caused the damage. Retail-tenancy rules can restrict this: a Queensland retail shop landlord cannot recover its insurance excess as an outgoing. Ask your solicitor whether the clause applies. Consolidated Insurance Brokers can explain the insurance side; who pays the excess on the landlord's insurance claim has the detail.