Insurance Obligations for Commerical Tenants | LegalVision UK (2024)

As a commercial tenant in the UK, you have many obligations when you take out a commercial lease. These details will be in your lease agreement per the lease terms. Some lease terms are likely to relate to your insurance obligations. You should be aware of your insurance obligations, as they will incur a financial cost to you, which you need to factor into the cost of your lease. This article will explain your insurance obligations as a tenant in a commercial lease agreement.

Lease Agreements

If you are a commercial tenant, you may have a lease for your business premises. This means that your landlord allows you to occupy their property for a period which is the lease term and for specific use for your business purposes. In return, you pay rent for the commercial premises.

You will have a lease agreement with your landlord, which will include the details of your commercial lease. It is a legal contract and will consist of lease terms that you and your landlord must abide by.

The following sections will explore common insurance obligations.

Building Insurance

As a commercial tenant, it is not typically your responsibility to make any arrangements for the building insurance policy. This will only be the case if you lease the entire property long-term. In this case, the building insurance will likely need to be in both your’s and your landlord’s names.

Building insurance is usually the responsibility of your commercial landlord. This is because you do not have an insurance interest in the property value as a tenant rather than the property owner.

However, you may have a lease term in your lease agreement, which details that you have an obligation to pay an insurance premium to your landlord. This could be the whole or part of it if you occupy shared premises. You could also pay this as an annual service charge, and your lease agreement may refer to it as ‘insurance rent’.

Your landlord may require you to pay this to ensure that you damage the property in any way they can fix it. It may also cover their losses should they fail to pay your rent.

Contents Insurance

When you rent commercial premises for your business, you may have an obligation to arrange and pay for contents insurance. It is also a good idea if you do not have this obligation. Your lease agreement will detail exactly what this should cover. It will typically need to protect your own contents in your business premises, including:

• equipment such as computers;
• furniture you own;
• fixtures you own;
• fittings you have; and
• any improvements you make to the commercial space.

Tenants Improvements Insurance

While your commercial landlord will require building insurance for the commercial property you occupy as your business premises, this will not cover everything associated with the building.

For example, you may invest in your commercial space and make improvements to it for your tenancy, such as refurbishments or enhancements. Building insurance only covers the costs of restoring a property in terms of the structure and how it originally stood, so it will not cover your efforts.

Therefore, you may wish to take out tenants’ improvement insurance, and your lease agreement may detail this.

Other insurance

There are other types of insurance you may need to pay as a commercial tenant. However, these are wider than the subject of this article as they relate to you as a business owner rather than strictly as a tenant in a commercial lease. These are, for example:

• public liability insurance; and
• employer liability insurance.

Key Takeaways

As a commercial tenant, you will likely have insurance obligations under your lease agreement. Generally, the arrangement and purchase of building insurance are the responsibility of your commercial landlord. However, this could be your responsibility if you lease the whole property. As a commercial tenant, your landlord will likely have a lease term which is an insurance obligation for you to pay in some form for the building insurance. You may also have insurance obligations to obtain contents insurance for your possessions on your premises.

If you need help understanding your insurance obligations in a commercial lease agreement in the UK, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. So call us today on 0808 196 8584 or visit ourmembership page.

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