Business building insurance is the cover most often bought by the wrong party or for the wrong amount. Who insures a commercial building is a question the lease answers, not a question the tenant decides, and the sum insured is a rebuilding cost rather than what the property is worth. Getting either wrong is expensive in a way that only shows up at a claim, when a settlement is reduced or two policies argue about which responds.
The lease decides who insures
In most commercial leases the landlord insures the building and recovers the premium from the tenant through a service charge or an insurance rent, while the tenant insures its own contents, stock, glass where the lease says so, and its liability. Some leases put the building on the tenant, particularly on a full repairing and insuring basis for a whole property. Read the insurance clause before buying anything, because paying twice is as common as not being covered.
Reinstatement cost, not market value
The sum insured is what it would cost to rebuild: demolition and site clearance, professional fees, compliance with current building regulations, and the time the work takes. That figure has no fixed relationship to what the building would sell for, and in many locations it is higher. Professional bodies publish guidance on assessing reinstatement cost, and a periodic assessment is the standard answer to the drift that otherwise accumulates.
Underinsurance reduces claims that are nowhere near the limit
Where a sum insured is materially below the true reinstatement cost, insurers may reduce a settlement in proportion, and that applies to partial losses as well as total ones. A business insured at two thirds of the real figure can have a modest fire claim cut by a third. This is the single most common disappointment in commercial property insurance and it is entirely an arithmetic problem.
What a building policy does not include
Contents, stock, machinery and tenant's improvements are separate sums insured. Loss of rent or of income while the building cannot be used is business interruption. Damage from gradual causes, wear and tear and, usually, damage during unoccupancy beyond a stated period are excluded or conditioned. An empty commercial property is a distinct risk with its own conditions and should be declared the day it empties.
Questions people ask about business building insurance
Who insures a commercial building, the landlord or the tenant?
The lease says. Most commercial leases put the building on the landlord and recover the premium from the tenant, while some full repairing and insuring leases put it on the tenant. Read the insurance clause before buying cover.
How do I work out the sum insured for a commercial building?
It is the reinstatement cost: rebuilding, demolition, site clearance, professional fees and compliance with current regulations, not the market value. Professional guidance exists on assessing it, and a periodic reassessment prevents the drift.
What happens if a commercial building is underinsured?
The insurer may reduce the settlement in proportion to the shortfall, including on partial claims, so a modest loss on a badly underinsured building can be cut substantially.
Does building insurance cover lost rent?
Not by itself. Loss of rent and loss of income while the property cannot be used are business interruption cover, which is a separate section with its own indemnity period.