Do you know what’s under the covers?

Andrew Herrett, Managing Director, Business Insurance Group Australia, often finds landlords and tenants are incorrectly insured or underinsured. Business insurance is more complex and requires more customisation to identify and cover relevant risk. It’s often only after an incident has occurred that they realise they were not covered.  Here we summarise some of the basics. 

What does business insurance cover? 
Landlord Insurance cover is typically limited to hard assets, loss of rent and liability. Never assume anything is insured by default. Always check.  When insuring a building for commercial, industrial or retail use, you must know who is responsible for covering which fixtures and fittings. Be specific. “If a tenant moves in and makes changes, (renovations, upgrades or improvements), the landlord must understand who is covering them and when the responsibility transfers from tenant to landlord. As a basic rule of thumb, whoever pays for it insures it,” Andrew stresses. The tenant’s internal contents insurance should provide cover for what they own and operate within the confines of the landlord’s premises, from a kitchen fit-out, upgrades, 3-phase power, to carpets, desks, and computers.

Which insurances should landlords require of tenants? 
– Public Liability is non-negotiable. 

– Internal Contents is highly recommended, covering the tenant’s property and improvements, including items they might leave behind when the lease expires. 

– Cash Flow Cover / Business Interruption is an optional requirement. “Practically and commercially, the more cover a landlord insists from a tenant, the more difficult it becomes
to lease the property,” Andrew has noticed. 

– Flood cover is generally an optional extra and should be taken out by those operating in a geographic location with potential flood exposure. With the recent floods, many businesses faced damage to stock and fixtures and fittings without insurance cover.

Other issues
Landlords’ leases should have ‘change of tenant and activities’ clauses because these give the landlord an avenue for recovery if the tenant voids the landlord’s insurances. It’s also a mechanism to recover increased insurance costs for any changes. The insurer must be notified of any form of construction works and renovations as they will decide if there is any impact on policy coverage and pricing. Failure to notify them may result in a claim being denied. Landlords are obliged to keep the insurer informed of changes in insured values and this includes rental income figures and building replacement values. 

Get professional help
Given the complexities of business insurance, landlords and tenants are encouraged to engage a business insurance specialist such as BIA Group to assist identify relevant risks and find the right insurance cover. A specialist commercial property agent who understands the various risks and insurances for both landlord and tenant, and with processes in place to minimise the chance of an oversight, is also highly recommended. Pine Property has numerous guides and checklists to help you consider your options.