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Commercial Vs. Residential Properties – The Guide For Landlords

By Darragh Timlin on August 29th, 2022

Deciding to invest your savings into property can be a great way to capitalise on your money. However, choosing between buying a commercial or residential property can sometimes be a bit of a head-scratcher for those new to property investments.

There are many differences between becoming a residential or commercial landlord. You will need to consider aspects such as commercial landlord insurance to protect you from the different risks you may face.

Ultimately, it depends on your investment goals and what you plan to do with your property. Buying and letting out a house or flat is very different to letting a warehouse on an industrial estate or a retail shop on a busy town high street.

All three possible scenarios will need different insurance coverage as additional risks and variables are associated with each type of property. It is difficult to say which one would be better for you as they all would be a good investment. But it can help to narrow down your choice by comparing the differences in more detail.

What Is Commercial Property Insurance?

Commercial property insurance offers protection when letting your property out to a third party for commercial use. You will draw up a rental agreement for your tenant that allows them to occupy your property to operate their business.

You are defined as the commercial landlord in this agreement, which makes you eligible to take out commercial property insurance on your property.

How Does Commercial Property Insurance Differ from Domestic Landlord Insurance?

There are a few differences between residential and commercial landlord insurance, but there are three main areas that differ the most from domestic property insurance are:

  • Tenant Types: Letting a house or flat to domestic tenants for residential use means they cannot, or are not supposed to, use your property as a base for running a hazardous commercial business. For example, using industrial machinery or commercial deep fat fryers in their home. Letting a commercial property means arranging commercial insurance and adjusting the cover to match the risk your tenants pose to your building.
  • Building Types: Commercial properties tend to be built differently from domestic homes. They may include wooden barns, steel structures, flat roofs, different heating systems, more complex electrical systems and fire protection systems. This means you need to work with experienced business insurance experts who will consider all these aspects when building an insurance policy.
  • Property Uses: When working out your insurance for commercial property needs, your policy will be built around how your tenants use it. For example, part of your cover will include property owners’ liability insurance, which will cover any compensation claims made against you by your tenants for property damage and injury through negligence. Ultimately, the landlord must ensure your property is adequately maintained to reduce risks and not your tenants.

Ensuring your commercial property with the right cover will protect your short- or long-term rental business. Commercial landlord insurance protects against insured losses to your buildings and protects you, as the landlord, if something unfortunate happens to your tenant or a customer visiting the premises.

What Does Commercial Landlord Insurance Cover?

There will always be risks associated with letting out any property, regardless of whether it is a residential or commercial premises. Commercial landlords need to protect themselves against risks that often crop up within industrial, logistical or retail business sectors. For example:

  • Property Owners’ Liability: This insurance covers you against injuries, accidents and property damage on your premises. For example, a delivery driver trips on a loose step falls and breaks his arm, or a door comes off its hinges and damages an essential piece of business machinery.
  • The Rebuild Cost Of Commercial Property: Commercial buildings insurance for landlords covers the same needs as a domestic landlord letting out a house or flat – the costs of a complete rebuild should the worst happen to your property. You must take out enough landlord business insurance to cover the total cost of what it would be to rebuild your property, including all the associated legal fees.
  • Loss Of Rent / Indemnity Period: Should something happen to your property that makes it uninhabitable following an insurable event, such as a devastating fire or flood, this insurance will cover any rent you cannot collect. The indemnity period is the length of time you can claim for ‘loss of rent’ expenses, so it could be anything from 12, 24 or 36 months, depending on the seriousness of the incident and the clear-up and rebuild time.
  • Landlord’s Content Insurance: Your building contents are classified as anything that is unattached and not part of your building’s structure. For example, if you provide furniture such as desks, tables and chairs, workbenches etc., these would be covered by your contents insurance. Fixed items such as doors, windows, built-in cupboards and walls come under building insurance.
  • Accidental Damage Insurance: This cover doesn’t always come as standard as part of a landlord’s insurance cover. You may want to add this to your policy. It covers any accidental damage to your property that isn’t covered by another insurance, for example, damage done by accidentally cutting through hidden wiring or water pipes when securing things like shelving or storage cupboards with nails or screws to a wall. However, you are not responsible for accidental damage to your tenant’s possessions as this will be covered by their own insurance.
  • Legal Cover: This isn’t usually included as standard in landlord insurance commercial property cover but is a worthwhile addition in most cases. This insurance will help pay your legal fees when taking a tenant to court for non-payment. While you may trust that your tenants will always pay their rent on time and in full, it is not guaranteed this will be the case.
  • Malicious Damage: There is no guarantee that you will get on well with your tenants. Should anything happen where you have a falling out, your tenants will have a right to be on your property with your permission according to their property lease. However, this won’t prevent them from causing any malicious damage to your property. Any damage done by an existing tenant will need to be put right before you can safely lease your property to a new tenant. This insurance will cover the repair costs.

As a commercial landlord, you will want to protect your investment with the proper buildings, contents, liability and accidental damage insurance. Our team at Brisco Business Insurance will put your mind at ease and provide you with the security you need to cover your assets.

Conclusion

Commercial landlord building insurance cover isn’t a one-size-fits-all product. Your policy needs to be carefully assessed and built around your individual needs.

Brisco Business compare insurance quotes and tailors a policy that will protect you from the most common risks associated with being a commercial landlord. From flat roof insurance to accidental damage protection, we have the knowledge and experience to assist you. Whether you’re a startup or an established enterprise, Brisco Business has the business insurance solutions to meet your unique requirements.

Darragh Timlin

With over 25 years’ experience, Darragh is an expert in all things insurance. Starting his career in commercial property underwriting, Darragh has worked for a number of global insurers and is now Managing Director of Brisco Business, part of the wider Henry Seymour Group.

All articles by Darragh Timlin

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