Commercial Property Insurance Risks
Every commercial property lease includes requirements for a level of insurance cover to be in place for the term of each lease. This insurance cover is a contractual obligation for the Landlord and Tenant and agreed by both parties when they enter into a lease.
The Landlord and Tenant should provide certificate of currency annually as proof of the required insurance cover.
Recently a number of our property owners have needed to make claims on their insurance due to storm, flood and plant breakdown and found their cover inadequate to cover the claim. One example was a major plant and equipment breakdown and the fine print on the insurance cover stated replacement was only equal to what plant or equipment had broken down – not replacement with new plant and equipment as the owner had expected. The turnaround time for the replacement of the plant was critical to the Tenant and as we know in metropolitan and particularly regional areas transport services and reliability can be a challenge. These issues potentially could leave the property owner seriously out of pocket with unexpected and unbudgeted capital expenditure and claims from the Tenant for loss of stock.
Another example on a property we recently took over from another agent and have leased to a new tenant. The previous tenant was seriously in default with arrears and damage to the property. The owner believed they were covered for loss of rent in this type of situation. After a long debate with the insurance company, the property owner’s insurance policy only covered for loss of rent in the event of a fire or damage or destruction.
We would recommend using an insurance broker and particularly one that deals with and understands all aspects of commercial property. Seek a second opinion from another insurer or broker on the cover you currently hold. We would recommend to all commercial property owners to review their insurance policies very carefully on at least an annual basis.