Is Commercial Property Insurance A Legal Requirement?

Is Commercial Property Insurance A Legal Requirement?

In short, no!

There is no legislation that requires commercial landlords to have property insurance in order to lease out their building, whether that to be a shopfront, offices, warehouse etc.

Obviously, whether going without insurance is a wise decision is an entirely different question.

I know, let’s ask Captain Obvious: It’s a terrible fucking idea!

Even Though Commercial Property Insurance Is NOT a Legal Requirement, You Might Still Be Obligated to Have It!

So, while insurance might not be a legal requirement as far as the law is concerned, going without it is just lunacy. You may as well take a leisurely stroll through a minefield and hope for the best. That said, beyond good ol’ common sense, there are other forces in play that might make insurance essential:

The terms so of your mortgage

If you have a mortgage on your commercial property, it’s almost guaranteed that your lender will require you to have commercial property insurance as part of the loan agreement. Lenders want to protect their investment, so they typically make insurance a non-negotiable condition.

The terms of your lease agreement

Granted, I haven’t seen a vast number of them, but every commercial lease I’ve come across explicitly states that either the landlord or the tenant/leaseholder is responsible for arranging building insurance. So, if there is no insurance in place, one (or both) parties are breaching the terms of the lease.

Who is Responsible for Arranging Commercial Property Insurance?

It depends on the terms of your lease. Again, I’ve covered this in more detail in my Guide on Commercial Property Insurance [for Landlords].

The lease should clearly outline who is responsible for arranging and paying for the insurance. If it doesn’t, it sounds like you might have confused toilet paper for a lease agreement. I would resolve that issue ASAP.

Typically – and rightly so, in my opinion – it falls on the landlord to ensure there is adequate insurance in place to protect the building. However, in my experience, the cost of the insurance is usually passed on to the leaseholder For example, the landlord arranges and pays for the policy upfront, and the leaseholder reimburses them. That said, it’s not entirely uncommon for landlords to absorb the cost themselves.