Learn who’s in charge of commercial insurance for a rental property, and how rights and responsibilities are divided.
Published Nov 7, 2023
What is commercial insurance for rental property?
Commercial insurance for rental property protects different types of business real estate, including retail shops and office complexes, factory facilities and warehouses.
Property owners and renters both prefer to cover their operating risks with insurance. Because the business risks that building owners and renters face are complex, multiple types of insurance can help mitigate them.
For landlords, these include:
- Commercial property insurance, which helps protect against fire, vandalism, flood and other losses that might result in damage to or destruction of your business property.
- General liability insurance, which could pay for attorney fees and third-party payments if someone gets hurt on your property or sues you to recoup an alleged financial loss.
- Equipment breakdown insurance, which activates when your heating, cooling or electrical systems suffer a mechanical problem that affects you (if you operate from the building) and your tenants.
- Loss of income, also known as business interruption coverage, which pays for your bank loans, taxes and other building expenses while your property is under repair due to a covered loss.
Many commercial property owners prefer to buy a business owner’s policy (BOP) to combine commercial property insurance with general liability. Insurers typically offer a significant discount when you buy this bundle.
For building renters, protection from business risk also involves multiple forms of insurance. Typically, these include:
- Commercial property insurance. While commercial property insurance for landlords covers the building itself, property insurance for renters provides funds to repair or replace damaged or stolen company property. This could include your computer equipment, office furniture and retail fixtures, as well as tools, phone systems, retail inventory and more. Think of commercial property insurance for renters as coverage for almost everything inside your leased space. Insuring property in public shared spaces is your landlord’s responsibility.
- General liability insurance. General liability insurance for renters can protect against third parties injured in your rented space and help keep you whole if you or an employee damage someone else’s property. If a visitor falls down the stairs in your office and needs emergency medical services, your general liability policy could help pay the tab. However, if the fall occurred in a common area of the building, not your rented space, then your landlord’s liability policy would probably handle the claim.
- Business income insurance. This coverage, also called business interruption insurance, could reimburse you for lost income and some additional costs due to a covered loss. For example, if a fire damages your leased office space, business interruption coverage could pay for operating expenses like your rent while your space is under repair. It could also pay for your lost business income.
Commercial renters can usually save money bundling these policies into a business owner’s policy for commercial property renters.
What does commercial insurance for rental property cover?
Remember this: Your landlord’s insurance coverage stops at the door of your office space, shop or facility. That means all of the property your business owns and stores in your leased space is your responsibility to insure.
For landlords, commercial insurance for rental property typically covers:
- Commercial property damage (the landlord’s, not the tenant’s) resulting from bad weather, fire, theft, vandalism and more.
- Legal costs from lawsuits filed against the property owner from third parties.
- Loss of business rental income from a covered loss that makes the building unfit for tenant use.
If your building is in a location prone to hail, tornadoes or hurricanes, your insurance company might require a higher deductible on your policy. You may be able to increase your premium to lower the deductible.
For tenants, commercial insurance for rental property usually covers:
- Your business property, including computers and networking equipment, office furniture, retail store fixtures, tools and equipment, retail inventory and more. That means if your property gets stolen or damaged, your insurance company could pay to repair or replace it. (Note: the compensation you could get will depend on whether you bought actual cash value coverage, which applies depreciation based on the property’s age, or replacement value, which reimburses funds to purchase a brand new item. Limits and sub-limits apply.)
- Physical damage that you or an employee inflict on your rental space, or damage/accidents that your business operations cause to the building walls or common areas (like a fire).
- Visitors who get injured while visiting your workspace who require medical treatment.
- The cost of hiring an attorney to defend you if an injured visitor sues you for damages.
- Vandals breaking into your facility and maliciously destroying office furnishings or equipment.
- Lightning, wind or rainstorm damage to roofs or windows that cause water damage to your property.
Who needs commercial property insurance?
Buying commercial property insurance is a part of doing business for property tenants and landlords.
Landlords commonly require their tenants to have insurance protection. If someone gets hurt in the tenant’s space, this adds another layer of protection for the landlord if tenant is uninsured. By mandating coverage, the landlord makes it more likely that third parties will hold tenants accountable when they are responsible for the loss.
Landlords may also mandate insurance because they want to collect rent. An uninsured loss could divert a tenant’s cash flow. This makes insurance a good idea for tenants and landlords alike.
Banks often require landlords to carry insurance as a condition of borrowing money. This assures that they can continue to make loan payments even if their property suffers major damage.
A renter’s rights and responsibilities for rental property insurance
Property leases may require business tenants to maintain insurance on their rental space and its contents.
Generally, renters are not responsible for insuring the building’s structure and common interior areas. But, if you pay to enhance your space — say, expand your kitchen or add a new conference room — your insurance must pay for damage to these added features. Any structures you add won’t be covered by your landlord’s policy. Speak with your insurance broker to arrange proper coverage before you begin your build out.
Finally, keep in mind that even though your insurance isn’t responsible for covering damage to the landlord’s building, your lease may require you to pay a portion of the landlord’s building insurance. Always check your lease terms to verify your responsibilities regarding insurance policies and cost-sharing.
A landlord’s rights and responsibilities for rental property insurance
A property owner or landlord should purchase insurance on the property to be rented. This coverage could pay for structural damage due to fire, vandalism or other covered events. It could also pay for legal expenses related to third-party lawsuits.
If the business owner also operates out of the building they own, the business should buy coverage for the business’ personal property as if they were a commercial tenant.
It’s also a good idea to require business tenants to add you as an additional insured on all relevant tenant insurance policies. For example, by adding your name to a tenant’s general liability policy, you’ll reduce the risk of a third-party injury claim on your policy rather than the tenant’s.
How NEXT helps protect commercial landlords and renters
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Answer a few questions, view your choices, see the cost and buy a policy online 24/7 in under 10 minutes.
After payment, you’ll get immediate access to your certificate of insurance to provide proof of insurance to landlords, tenants and more.
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