Top Tips -
for Property Owners
Save time and money on building and rent insurance for property owners. Guidance on the covers you need.
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Checking the terms of the lease
Insuring your building
What must your tenants insure?
What if the building is vacant?
Protecting your interests
Do you need Liability Insurance?
1. Checking the terms of the lease
You should review your current insurance against the terms of the lease. By doing this, you can establish who is responsible for arranging insurance. As landlord, you will usually be responsible for insuring the building, but most leases allow you to recoup the premium from the tenant – for example, as part of the rent or service charges.
The lease will also state what perils the building is to be insured against, such as fire, explosion, storm, etc. Even if the lease only mentions a limited number of perils, it's usually sensible to protect your investment by buying wider cover, such as either fire and all the additional perils available, or "all risks". In theory you can only ask the tenant for the premium that relates to the perils listed in the lease, but this may amout to splitting hairs where the additional cost of the extra perils is insignificant.
2. Check the terms of the mortgage - if you have one
If you have taken out a mortgage on the building, it will specify the perils that you must insure the building against. If the mortgage only mentions a limited number of perils, it's usually sensible to buy wider cover, such as either fire and all the additional perils available, or "all risks".
3. Rent insurance and rent conditions
The lease will also stipulate whether, in the event of serious damage like a fire, the tenant will remain liable to pay you the rent.
- If the tenant will continue to pay rent, you need to make sure they have taken out insurance on the rent that would still be payable. Otherwise, they may not be able to afford to continue paying you.
- If the tenant will not continue to pay rent, you need to insure the rent you receive during however many months you think it could take to:
- rebuild the premises and
- rent it out again (whether to the same or a different tenant).
- Consider the lease - are you responsible for insuring the rent under the terms of the lease? If so, ensure the number of months is at least as long as that required by the lease.
- rebuild the premises and
This insurance makes up for the rent that you would otherwise have received following a fire or other serious damage. Depending on the terms of the lease, you should normally be able to recoup the cost of the rent premium from the tenant. This is often done as part of the rent or service charges.
4. Building insurance
The building needs to be insured for the full amount that would be required - as at the first day of the current year of insurance - to entirely rebuild it as closely as possible to its current form. It’s also vital to make sure that, once insurance has been taken out for this amount, the figure is regularly increased to allow for inflation. The total should make provision for site clearance, professional fees, such as architect's fees.
5. Terrorism insurance
Most insurance companies exclude terrorism from the standard cover and then charge you extra to include it.
These are the points you need to consider when deciding whether to buy terrorism cover:
- If terrorism insurance is required under the terms of the lease, you need to make sure it is included. Check if the tenant is responsible for paying for the cover.
- If you have a mortgage on the building, your mortgage lender may insist you insure the building against terrorism.
- If the premises are in an area that terrorists are likely to target, it would be unwise not to buy the cover.
- Remember terrorist damage doesn’t just occur in major cities – recent events have shown that many bomb factories are in suburban areas and even in blocks of flats.
6. Multi-tenure buildings
If the building is occupied by various different businesses, this could affect the terms of your insurance. For example, an insurer may base the premium on whichever business is considered to present the most serious fire hazard – because a fire could begin there and spread to rest of the building. This may need to be explained to other tenants whose premium contribution may be higher than they would otherwise have expected.
7. What do your tenants need to insure?
You need to agree with the tenant what they are responsible for insuring – as part of their business contents – and what you are responsible for insuring as part of the building. This is normally specified in the lease. Generally, machinery, alterations or improvements installed by a tenant will be the responsibility of the tenant until they move out – when whatever they do not take with them becomes your responsibility.
8. What if the building - or part of it - becomes vacant?
The building may sometimes become unoccupied, for example after one tenant has moved out and before another moves in. Insurers are often wary of insuring unoccupied buildings because of the increased risk of arson and vandalism, and they may wish to change the terms of the insurance during the period of unoccupancy, e.g. by increasing the premium.
9. Protecting your interests
As landlord, you are not necessarily aware of all the tenant’s activities. It is important that a condition – often called a non-invalidation clause – is included in the building insurance policy. This clarifies that your right (as the landlord) to claim under the policy will not be jeopardised by any change in the risk that you are unaware of – provided of course that you inform the broker or insurer whenever you do become aware.
10. Do you need Employers’ Liability Insurance?
This may be compulsory by law – You must have Employers’ Liability insurance if:
- you employ someone, or control their work, eg. work experience people or sub contractors, or
- you are a limited company (even if you don’t employ anyone else – this is because the limited company is employing you).
11. You should also consider Public and Property Owners Liability insurance
This covers your liability at law for injury to others or damage to their property arising from the ownership of the building or while conducting your business in general.
12. Maintain an audit trail
Keep copies of all your correspondence about insurance, and make notes of any conversations and meetings. This may prove very useful if you need to make a claim, or if a dispute arises about what’s been agreed.
What next . . .
Renewing or amending your Property Owners insurance - the steps you need to take to renew Business insurance or change the cover
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