Commercial landlord insurance is cover for people who let property to businesses, such as shops, offices, clinics, cafés or industrial units. If you've let flats or houses before, it's easy to assume your residential landlord policy can stretch to a commercial tenant. Usually it can't, because the risks, the tenants and the legal set-up are different.
This guide explains what commercial cover typically includes, where residential policies fall short, and what to check before you get quotes.
Why a Residential Policy Isn't Built for Commercial Tenants
Residential landlord insurance is designed around people living in a property. The insurer prices the risk based on things like the number of tenants, whether they're students or families, and how the home is used day to day.
A commercial tenant changes that picture. A takeaway with fryers, a hair salon with chemicals and a busy shop with members of the public walking in all carry different risks to a family living in a flat. Some insurers that sell residential landlord cover point landlords with business tenants towards a separate product for exactly this reason.
If you let a commercial unit on a residential policy, there's a real chance a claim could be refused because the property isn't being used the way the policy expects. If a dispute can't be settled with the insurer, the Financial Ombudsman Service sets out which small businesses it can help, based on turnover, balance sheet or staff numbers.
What Commercial Landlord Insurance Typically Covers
With commercial landlord insurance, exact cover depends on the insurer and the policy you choose, but these are the core parts you'll usually see.
Buildings Cover
This protects the structure of the property against events like fire, flood, storm and escape of water. Depending on the policy, it may also include fixtures and fittings that belong to you as the landlord.
Property Owners' Liability
This covers you if a tenant, a visitor or a member of the public is injured, or their property is damaged, because of a problem with the building you're responsible for. A loose paving slab outside a shop or a faulty stair rail in an office block are typical examples. With commercial premises, more people may pass through each day, so the limit you choose matters.
Loss of Rent
If the property can't be used after an insured event, such as a fire, this can pay the rent you'd have received while repairs are carried out. Some policies include it as standard and others offer it as an option.
Glass Cover
Shops and offices often have large areas of glass, such as shopfronts. Some commercial landlord policies include fixed glass cover as standard.
Extras That Are Often Optional
These aren't always included, so check whether you need them:
- Terrorism cover. In Great Britain, terrorism cover for commercial property is backed by Pool Re. HM Treasury's terrorism reinsurance fact sheet describes it as the government-backed terrorism reinsurer, set up by the insurance industry under 1993 legislation. Check whether your lease or lender requires terrorism cover.
- Subsidence. Often available, but insurers may ask about the building's history and location.
- Legal expenses. Can help with costs from disputes, such as rent arrears or lease issues.
- Accidental damage. Cover for one-off unintended damage to the building.
- Tenant relocation or alternative premises. Some policies help with costs if tenants need to move out during repairs.
Employers' Liability: Only if You Employ Staff
If you employ anyone, such as a caretaker or cleaner, you'll usually need employers' liability insurance by law under the Employers' Liability (Compulsory Insurance) Act 1969. GOV.UK's guide to employers' liability insurance says you need it as soon as you become an employer, with cover of at least £5 million. You can be fined £2,500 for every day you're not properly insured. An exemption may apply if you employ only close family members, but it generally does not apply if the employer is incorporated as a limited company.
If you don't employ anyone, this part won't apply to you.
Rebuild Cost, Not Market Value
Buildings cover should be based on the cost of rebuilding the property, not what it would sell for. The two can be very different.
BCIS, a building cost data service, explains in its guide to getting reinstatement costs right that the rebuild cost is fundamentally different from market value or purchase price. A shop in a busy high street might have a high market value because of its location, while the rebuild cost depends on the size, materials and construction of the building itself.
If you insure for too little, a claim could be reduced. If you insure for too much, you could pay more than you need. Commercial and listed buildings can be complex to rebuild, so some landlords get a professional rebuild valuation. Review the figure regularly, because building costs change.
Mixed-Use Buildings
A common setup is a shop on the ground floor with flats above. This is where residential and commercial risks meet, and it's one of the main reasons landlords need specialist cover. A residential-only policy may not accept the commercial part, while some commercial landlord policies are designed to cover both under one roof.
When you get quotes, describe exactly how each part of the building is used.
Say you own a building with a café on the ground floor and two flats above. A fire starts in the café kitchen and damages the whole building.
You'd want the policy to cover the commercial and residential parts, any lost rent from the café and the flats, and liability if anyone is hurt. A residential-only policy may not respond to a claim that starts in a commercial kitchen, which is why the full use of the building needs to be on the policy from the start.
How Your Tenant's Trade Affects Cover
Your tenant's business is one of the biggest factors for insurers. Some trades are harder to insure than others, and certain types, such as licensed restaurants and takeaways, aren't covered by every commercial landlord insurer.
Expect to be asked about:
- The exact trade of each tenant
- Opening hours and whether the business sells alcohol
- Any cooking, heating or storage of hazardous materials
- Security, such as alarms and shutters
If a tenant changes or the business changes what it does, tell your insurer. Leaving it out could affect a claim. Give every insurer the same complete details so you can compare the cover and price fairly.
What Happens When the Property Is Empty
Commercial units can sit empty between tenants. Many policies have conditions for unoccupied property, and some insurers only accept a property if it's expected to be occupied within a set period. Cover can also be reduced while a building is empty, for example with no loss of rent cover during that time.
This guide to unoccupied home insurance explains how empty-property rules work for homes, and many of the same ideas apply to commercial buildings. Read your policy's unoccupancy section carefully and tell your insurer if a unit becomes vacant.
Who Pays for the Insurance Under a Lease
With many commercial leases, the landlord arranges the buildings insurance and then recovers the cost from the tenant. In a building with several tenants, each usually pays a fair share.
Tenants generally arrange their own cover for their contents, stock and any improvements they have made. Your own vehicles also sit outside the property policy, so insure them separately where required.
Your lease sets out who insures what, so check it before buying a policy and make sure the cover matches what you've agreed.
What to Check on Commercial Landlord Insurance Before You Get Quotes
- The full use of the building, including any flats above or beside commercial units.
- Each tenant's trade, opening hours and any higher-risk activities.
- The rebuild cost, not the market value, for buildings cover.
- Your lease obligations, including whether terrorism cover is required.
- Whether you employ anyone, which affects employers' liability.
- Your excess. A higher excess can lower the premium but means you pay more of any claim. Compare both the compulsory and voluntary excesses on each property policy.
If you let property to businesses, commercial landlord insurance is the cover designed for those risks, and getting the details right at the start makes claims far simpler later.
Frequently Asked Questions (FAQs)
1. Can I Use Residential Landlord Insurance for a Shop?
Usually not. Residential policies are designed for people living in a property, so a business tenant may not be covered. Some insurers direct landlords with commercial tenants to a separate product.
2. Does Commercial Landlord Insurance Cover Flats Above a Shop?
Many policies can cover mixed-use buildings, but not all. Tell the insurer exactly how each part of the building is used.
3. Do I Need Employers' Liability Insurance as a Landlord?
Only if you employ staff, such as a cleaner or caretaker. GOV.UK says it is generally a legal requirement once you become an employer, with at least £5 million of cover. An exemption may apply if you employ only close family members, but generally not if the employer is a limited company.
4. Is Terrorism Cover Included?
Not always. It's often an optional extra. In Great Britain, terrorism cover for commercial property is backed by Pool Re. Check whether your lease or lender requires it.
5. Who Pays for Buildings Insurance on a Commercial Lease?
Often the landlord arranges it and recovers the cost from the tenant under the lease. Check your lease, because the terms vary.
