Business building insurance – full insuring and repairing leases – part II

A belated follow up to last weeks post on the effects of a full insuring and repairing leases on business and commercial property owners insurance policies. One of the basic doctrines of all types of insurance is that you can only insure something that you have a financial interest. However, you can still insure something that you do not own, where required to do so under contract. This usually occurs in two different types of scenario. Firstly where you are leasing or hire purchasing a physical asset and secondly where you are renting a property. Both are similar, except that in the first scenario you may end up owning the asset after a number of years whereas in the second, you are simply leasing and there is no purchase element to this.

In our previous blog, which shed some light on FRI leases we stated that the lease will require you to do many different things (for example you may need to redecorate every x years or when you vacate the property), but in the main there are three. The lease will state that you have a suitable insurance policy. Also you will need to have a specific sum insured (for the buildings and maybe loss of rent payable) and lastly the financial interest of the owner is noted.

Looking at the first point only, the lease will say that you need to have a suitable commercial property owners insurance policy, or some similar wording. The leases that we have seen, do not usually go beyond this point unless to specifiy it must be with a reputable insurer and a list of the perils, or risks, that need to be covered. When agreeing to the lease, your solicitor should point out to you the requirements of this part of the lease, if it applies to you. It may well be that you have to arrange the policy and prove that cover is in place, before you even move into the premises. The best place for you to go to arrange a policy like this is a business insurance broker. Forget the internet sites that offer to compare cover for you. You want to deal with an individual who can discuss your needs and wants and if you need to, they can email documentation to the right person at the right time.

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