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Is Commercial Insurance Necessary if You are a Tenant?

If you are starting a new business and you opt to take out a commercial lease for your office, you may think that your premises are fully covered by your landlord. Landlords in the UK are obliged to insure the building against common events such as fires, flooding, and other ‘acts of God’, yet their obligation does not cover all risks. As a tenant, your obligation is to keep the property in operable condition. For instance, you will be required to carry out internal repairs and maintenance and in some cases, you may be deemed responsible for external maintenance. However, you may also be liable to pay for repairs caused by any damage the premises are not insured for.

What Risks May Not be Covered?

As noted by experts at legal services firm Nexa Law, “Many solicitors acting for tenants are now demanding a provision to protect the tenant in the event of damage by an uninsured risk.” The new demand, they note, is based on The Code for Leasing Business Premises, which states that if premises cannot be occupied because of an uninsured lease, tenants have the right to terminate the contract, unless the landlord restores the building to a usable state. It is therefore up to you to ensure your lawyers help draft a contract stating that you will not be liable for repairs for uninsured and unforeseeable risks.

Drafting a Watertight Lease

The lease is the single most important document that determines your relationship with the landlord, as well as your responsibilities in terms of the building you are leasing. You may find that standard leasing contracts place most of the onus on you. Your solicitor will help you negotiate, but he or she may advise you to take out insurance for specific uninsured risks, including damage caused by events as unforeseen as terrorism.

Adding Uninsured Risks to Your Existing Coverage

Whether you are a small or more established business, you will probably already have an insurance plan covering areas such as contents, worker’s compensation business interruption, and commercial vehicle insurance, which may cover vehicles you don’t own – including those owned by employees but used for business. Another must is life insurance, which would allow partners to cover losses if a key founder should pass away. It may be worth your while speaking to your insurance company about tacking on unforeseen commercial risks onto an existing policy, since the monetary difference may be insignificant.

Supply and Demand

The extent to which you can evade commercial insurance for unforeseen or uncovered risks depends on your negotiating power with the landlord. In high-demand leases, your landlord may not be willing to take out coverage beyond what is legally stipulated. If you do decide to bear the brunt of the responsibility, make sure your insurance contract is drafted in language that is wide enough to protect your business against existing and possible threats.

It is important to understand your full range of responsibilities when taking out a commercial property lease. Before you sign, make sure a survey is carried out so that necessary repairs can be carried out and risks of flooding and other circumstances reduced through renovations if possible. Try to place the onus back onto the landlord when it comes to insurance. At the very least, all foreseeable/common disasters (including fires, explosions, and damage caused by flooding and rain) should be covered in your tenancy contract.