Commercial properties are often high-value assets and come with significant responsibilities. One of the most crucial aspects of protecting your investment is ensuring you have the right commercial property landlord insurance in place. Insurance provides a financial safety net to cover rebuilding or repair costs after an insured event.

Whether you own an office block, retail space, warehouse, or industrial unit, a landlord must understand the ins and outs of insurance.

What is Commercial Property Insurance?

Commercial property insurance protects buildings and associated structures used for business purposes. For landlords, this coverage typically applies to properties rented out to commercial tenants, and safeguards landlords against many risks associated with owning and leasing a commercial building.

The insurance is designed to cover damage or loss resulting from events like fire, flood or water damage, earthquakes, storms and natural disasters, vandalism and theft. Instead of just insuring the physical building, commercial landlord insurance often bundles multiple types of risk cover including property damage, liability and loss of income.

What to look out for in a Commercial Insurance Policy

Sum Insured / Valuation

Insure the premises for its full replacement value to reduce the financial risks of rebuilding or repairing in the event of a major loss. Accurately value the property, considering the rebuild cost rather than just the market value. The replacement value you nominate should adequately cover the true cost of rebuilding (e.g. inflation, demolition costs, architect, engineers, building and resource consent costs).

Natural Disaster Cover

New Zealand is prone to earthquakes and other natural disasters. Commercial properties can require additional cover through private insurers, especially if the property is in a high-risk area.

Glass and Fixtures Cover

Covers fixed glass (windows, shop fronts) and permanent fixtures like cabinetry, lighting, and built-in furniture.

Public Liability

Protects you from third-party claims for injury or property damage occurring on your premises. If someone is injured on your property and you’re found legally responsible, legal liability cover (often included or available as an add-on) can protect you from costly legal claims.

Loss of Rent

Many policies offer loss of rent cover, which helps landlords maintain cash flow by compensating for the rental income lost while repairs are being made and tenants cannot occupy the building due to an insured event.

Inclusions / Exclusions

All insurance policies differ in the fine print and they have different exclusions and conditions, so it’s recommended to not compare insurance on price alone. Carefully read policy wording to know what isn’t covered (e.g. wear and tear, gradual damage). Ensure the policy meets your needs and that your insurance adviser has properly evaluated your risks.

Fixtures and Fittings

Make sure these are insured in addition to the building you are leasing out and if improvements left by a previous commercial tenant have legally been transferred to you at the cessation of a lease, make sure these have been included in the valuation and included in the insurance.

Legal Requirements Lease Agreements

Mortgage lenders typically require insurance for commercial buildings. Additionally, some lease agreements obligate landlords to maintain adequate insurance for the tenant’s benefit. Lease agreements outline who is responsible for insurance and related costs.

Typically:

• The landlord insures the building.
• The tenant may contribute to the premium as part of operating expenses (OPEX)
• The tenant insures their own contents, fit-out, and business interruption.

It’s essential to align your insurance policy with the lease agreement to avoid coverage gaps or disputes.

Factors Affecting Insurance Premiums

Insurance costs vary based on several factors:

• Location (e.g., earthquake zones often attract higher premiums)
• Building age and construction materials
• Use of the premises (e.g. warehousing vs. office space)
• Security and fire protection measures
• Claims history

Landlords should periodically review and update their building’s sum insured to avoid being underinsured.

Commercial property insurance is a fundamental layer of protection for your financial security. By understanding your obligations and the risks your property faces, you can choose the right policy and avoid unpleasant surprises.

Before signing on the dotted line, ensure you read the fine print and always consult an insurance broker or legal advisor and get a professional valuation to ensure your coverage is appropriate. Insurance brokers can help compare policies and tailor coverage to your needs.

Chat to our Commercial property management team today for the management of your commercial assets.