What Insurance Do I Need as a Commercial Landlord?
Being a commercial landlord is both an opportunity and a responsibility. You are not just providing space for a business; you are investing in a property asset that needs protection.
One of the key ways to safeguard your investment and your legal position is through insurance. But many landlords ask: What insurance is truly essential, and what is advisable but optional?
Commercial property is typically a high-value asset. Even seemingly minor incidents can have significant financial consequences. Fires, floods, theft, vandalism, tenant disputes, accidents—any of these can cost you dearly. Insurance is your safety net.
Yet, there is no universal answer to what insurance you must have, as requirements depend on your property, tenants, lease terms, lenders, and personal risk tolerance.
Below, we explore in depth the key types of insurance you should consider as a commercial landlord, including those that are usually seen as essential and those that are highly advisable.
Buildings Insurance
Buildings insurance is the cornerstone of any commercial landlord’s protection plan. It is generally considered essential. If you have a mortgage on the property, your lender will almost certainly require it.
Buildings insurance covers the cost of repairing or rebuilding your property if it is damaged or destroyed by risks such as fire, flood, storm, vandalism, or subsidence.
Commercial properties are often larger or more complex than residential ones, featuring amenities such as warehouses, office suites, retail frontages, and specialized fittings.
This complexity can make repairs expensive. Buildings insurance ensures that you are not left out of pocket for structural damage.
Typically, a good building policy will cover the following:
- The main structure of the building
- Outbuildings
- Fixtures and fittings that are part of the property (like kitchens or bathrooms in office units)
- Perimeter walls, fences, and gates
- Some landlords’ policies also include accidental damage as an optional extra
It is important to insure for the rebuild cost, not the market value. Underinsuring could leave you responsible for a portion of the bill if there’sa claim is made. A professional valuation is advisable to set the correct sum insured.
Loss of Rent Insurance
Loss of rent insurance sometimes included as part of a wider landlord policy, is also widely regarded as essential for many commercial landlords.
If your property becomes uninhabitable due to an insured event (for example, fire or flood), your tenant may not be able to trade from the premises. This typically means they will stop paying rent. Loss of rent insurance covers that lost rental income while the property is being repaired.
The cover usually runs for a set indemnity period—often 12, 24, or 36 months—designed to reflect the time it might take to reinstate the building and re-let it if necessary.
For landlords with commercial tenants on long leases, loss of rent cover is vital for protecting cash flow. It helps ensure you can continue to service any mortgage or meet other financial obligations even if disaster strikes.
Public Liability Insurance
Public liability insurance is another key type of cover that is highly advisable—often considered essential, particularly for properties with multiple tenants or high visitor traffic (like retail units or offices).
This insurance protects you if a third party (for example, a visitor, contractor, or even a passerby) is injured or has their property damaged due to your premises.
Imagine these scenarios:
- A loose roof tile falls and injures someone on the pavement.
- A client visiting your tenant trips on a damaged step.
- Water leaks from your premises and damages a neighbouring unit.
If you are found legally liable for such incidents, public liability insurance covers legal fees and compensation. Given that injury claims can run into tens or hundreds of thousands of pounds, this cover provides crucial financial security.
Public liability is often included in packaged landlord insurance policies; however, it is essential to carefully review the cover level. Many landlords aim for at least £2 million or £5 million of cover, depending on the risk profile.
Property Owners’ Liability
Closely related to public liability is property owners’ liability insurance. This is sometimes treated as a distinct cover in landlord policies.
It specifically addresses your legal liability as the property owner, even if you do not manage daily business operations on-site. For example, if structural issues with your building cause injury or damage, you could be held liable even if tenants are responsible for maintenance under the lease.
Property owners’ liability typically overlaps with public liability but ensures that you are covered for issues specific to the landlord’s responsibilities under premises law.
Employers’ Liability Insurance
If you directly employ anyone about your commercial property—for example, caretakers, cleaners, or maintenance staff—you are legally required to hold employers’ liability insurance.
This insurance protects you if an employee is injured or becomes ill because of their work. Even if you have only one employee, the law requires this coverage.
Landlords who do not directly employ anyone on payroll may not need it. However, you should check carefully: if you supervise or control someone’s work—even a contractor you treat as self-employed—you might still have obligations.
Contents Insurance (for Landlords)
Commercial landlords often consider contents insurance a tenant’s responsibility—and that is true for the tenant’s stock, equipment, or furnishings.
However, you may own contents that remain your responsibility, such as:
- Furniture in serviced offices
- Communal-area furnishings
- Specialist landlord equipment stored on-site
If you have such contents, landlord contents insurance is advisable. It covers damage, theft, or loss of these items. For many landlords, this is an optional extra, but it can be valuable for those offering furnished or part-serviced commercial premises.
Fixtures and Fittings Insurance
Some insurance policies distinguish between buildings, contents, and fixtures and fittings. While many fixtures and fittings (like built-in shelving or counters) are covered under building insurance, others may be classed as contents depending on how they are installed.
Commercial landlords should carefully review lease terms to determine who is responsible for which fixtures and fittings. Ensuring these are insured appropriately reduces disputes and unexpected costs in the event of damage or loss.
Rent Guarantee Insurance
Rent guarantee insurance is separate from coverage for loss of rent resulting from insured damage. It covers unpaid rent in the event of a tenant’s default.
While more common in the residential sector, some providers offer commercial rent guarantee policies. These can be particularly helpful for landlords leasing to small businesses or new start-ups where the risk of tenant insolvency may be higher.
Rent guarantee cover can:
- Help maintain cash flow
- Reduce the financial impact of lengthy possession proceedings
- Offer peace of mind when letting new or untested tenants
This is typically an advisable rather than essential cover. Its relevance depends on your tenant profile, your risk appetite, and the lease’s security (e.g., personal or corporate guarantees).
Legal Expenses Insurance
Disputes with tenants can be costly and time-consuming. Legal expenses insurance covers the legal costs of pursuing or defending certain types of disputes, such as:
- Eviction proceedings
- Breach of lease terms
- Property damage claims
- Recovery of rent arrears
For landlords with multiple units or a diverse tenant base, legal expense insurance is a relatively low-cost way to manage the risk of unforeseen legal battles.
Again, this cover is not mandatory, but it is highly advisable if you want to reduce potential legal costs.
Terrorism Insurance
Many standard commercial property insurance policies exclude damage caused by acts of terrorism.
If your property is located in a major city or a high-profile area, you should consider adding terrorism insurance as an option.
Commercial lenders often require terrorism coverage for properties in central business districts, given the potential scale of damage and the risk of uninsured losses in the event of a catastrophic scenario.
Terrorism insurance typically covers the following:
- Damage to the building and landlord-owned contents
- Loss of rent following an insured act
- Debris removal and site clearance
This cover is often purchased through government-backed schemes in many countries, making it more affordable than landlords may expect.
Engineering Inspection and Breakdown Cover
Some commercial buildings include equipment such as lifts, boilers, or escalators.
Local regulations often require regular safety inspections of this type of equipment. Engineering inspection insurance provides the necessary inspections and certifications to ensure legal compliance.
Engineering breakdown insurance, meanwhile, covers the cost of repairing or replacing equipment if it fails unexpectedly.
For landlords with such equipment in their properties, these covers are not only advisable but sometimes effectively mandatory to meet regulatory standards.
What Is Essential vs. Advisable?
Ultimately, what is “essential” and what is “advisable” depends on your property type, lease structure, tenant profile, and risk appetite.
However, many landlords treat the following as essential:
- Buildings insurance
- Loss of rent insurance
- Public liability or property owners’ liability insurance
- Employers’ liability insurance (if employing staff)
The following are typically advisable, depending on your circumstances:
- Contents insurance (for landlord-owned items)
- Fixtures and fittings cover
- Rent guarantee insurance
- Legal expenses insurance
- Terrorism insurance
- Engineering inspection and breakdown cover
Before choosing policies, review your lease terms carefully. Some lease agreements make the tenant responsible for certain insurances, while others leave the responsibility with you.
Always ensure that your insurer is aware of the exact occupancy arrangements and use of the property to avoid potential claim disputes.
Ultimately, it is advisable to work with a broker who has a thorough understanding of the commercial landlord market. They can help tailor a policy to your needs and make sure you are neither over-insured (and overpaying) nor under-insured (and exposed to significant risks).
FAQs
What insurance is mandatory for commercial landlords?
Lenders usually require building insurance. Employers’ liability insurance is legally required if you employ staff. Other insurance types are not strictly mandated by law but may be required under your lease, by lenders, or to meet practical risk-management needs.
Is the loss of rent insurance included in a building’s insurance policy?
It often is, but not always. Many commercial landlord policies bundle loss of rent coverage with building insurance up to a set limit. Always verify that the indemnity period and sum insured align with your risk exposure.
Do tenants need to obtain their insurance?
Typically, tenants are responsible for insuring their own contents, stock, and business interruption risks. Landlords insure the building and often loss of rent. Lease agreements should clearly define these responsibilities.
How much public liability cover do I need?
This depends on your property’s risk profile. Retail units or spaces with high foot traffic may require higher limits (£5 million or more). Many landlords opt for at least £2 million as a minimum.
Can I insist my tenant reimburse me for insurance costs?
Yes, this is common in commercial leases. The landlord insures the building and recovers the premium from the tenant as part of the service charge or rent. Check your lease terms to confirm your rights.
Is terrorism insurance worth it?
It depends on location. In city centres and high-value districts, lenders often insist on it. Even in smaller towns, it can be a cost-effective safeguard against catastrophic, excluded risks.
What happens if I underinsure the building?
Most policies include an “average” clause. If you insure for less than the rebuild cost, you may receive only a proportionate payout in the event of a claim. This can leave you out of pocket for repairs.
Should I use an insurance broker?
Yes, brokers understand the complexities of commercial landlord insurance. They can tailor cover to your property and help you avoid gaps or unnecessary duplication.
By carefully assessing these insurance types, you can protect your investment, comply with legal obligations, and sleep more easily, knowing you are covered against the risks that come with being a commercial landlord.
The British Landlords Association is a national landlord association for UK landlords and one of the largest landlord associations in the UK. The BLA is the only commercial landlords association in the UK. Join us now for £79.95!
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