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Leasing: Obtaining Insurance

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Obtaining insurance is a critical part of the leasing process. Before you receive the keys to your new commercial premises, your landlord will want to ensure that you have the required insurance coverage as specified in your lease documents. This is because you and the landlord will have peace of mind that your insurer will cover the repair costs, should anything happen whilst you are the tenant. When taking out an insurance policy, it will list you as the ‘insured’, and your landlord as an ‘interested party’. This article will discuss the insurance policies that you will likely need to obtain by the landlord. It will also discuss why you should ensure you have adequate insurance protection. Finally, this article will list the key things to look out for relating to insurance in the lease. 

Why Should I Obtain Insurance?

There are many reasons why you should take out an insurance policy for your commercial premises. Indeed, the reasons are similar to the reasons for taking out an insurance policy your home. For instance, imagine that there was a natural disaster or a break-in. Your property and contents could be stolen or damaged in such a scenario. Without insurance, you would need to use your own money to repair the damage or replace any items. Therefore, to avoid this huge financial risk, acquiring insurance is usually an essential lease contract term. 

Additionally, you should seek to obtain insurance as you could be in direct breach of the lease. Most leases require the tenant to obtain insurance as an essential term of the contract. Therefore, if you do not take out the required policies on your lease agreement, you risk breaching your lease. Moreover, as a tenant, you will be required to repay the landlord for any losses, damage, injury or death arising from your conduct. Therefore, an insurance policy can save you financially in an unforeseen event. Finally, you may not be able to enter the premises until you have shown the landlord your Certificate of Currency (CoC) for the insurance policies. 

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What Policies Will I Be Required to Obtain? 

Typically, you will need to obtain some or all of the following insurance policies under your lease agreement:

Public Liability Insurance

This policy will be to cover the premises, car spaces, and any other space being licensed or used by you. Usually, the landlord will require you to obtain a public liability insurance policy with a minimum protection of $20 million. 

For example, public liability insurance protects you if a customer comes onto your property and injures themselves. The insurer will cover their medical bills due to the injury. 

Plate Glass Window 

This policy will cover damage for any reason to plate glass in the windows and other parts of the property. This keeps the property secure. It also protects the landlord’s interest in the property.

All Risks Policy

This is to protect against damage to, and loss of property for fixtures, stock, goods and fittings within the property belonging to you as the tenant. 

For example, imagine that someone breaks into the premises and steals stock. In this case, the costs to replace those goods would be covered by an All Risks policy. 

Workers Compensation Insurance  

Worker compensation insurance protects you in the event that one of your employees injures themselves while at work. Australia’s states and territories already regulate this policy. However, some leases will reinforce this requirement in the leasing documents. 

Additionally, landlords will often request that you show them the Certificates of Currency for these policies before they will let you enter the property. In some cases, they will cover you for these insurances under their group insurance policy. These costs are then typically recovered as outgoings from you. 

Whose Name Should the Insurance Be Under?

The insurance should be in the name of the tenant as specified in the lease. For example, if the tenant is the company name, the insurance policies should also reflect this. The landlord will often request to be an interested party on the insurance policy. 

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What Do I Need in My Lease Agreement Regarding Insurance and Damage to the Premises? 

It is highly recommended that you have an experienced leasing lawyer look over your lease agreement before signing. This ensures that you are well-informed about any obligations you will have under the lease. In relation to insurance, your lawyer should ensure that the lease agreement includes the following:

  • If there is damage to the property causing it to be unusable or inaccessible during the term of the lease, the landlord should not require you to pay rent or any applicable outgoings (including insurance) during this time;
  • If the damage still allows for you to use the premises, but limits the usability of the premises, there should be a reduction in rent and outgoings (including insurance) in proportion to the reduction of usable space; and 
  • It is important that any requirements for obtaining insurance, including the minimum liability cover specified by the landlord, are clear. You should prioritise ensuring that you obtain this cover before the commencement of the lease. You may choose to use an insurance broker to assist with acquiring the appropriate insurance policies for your business. 

Key Takeaways

Obtaining insurance is a critical part of the leasing process. Insurance can protect you from a wide variety of incidents, and many landlords will require adequate insurance coverage as part of a lease.

If you have any questions about insurance for your lease, our specialist property lawyers can assist you as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What insurance will I need as a commercial tenant?

You will likely be required to obtain Plate Glass Insurance, Public Liability Insurance, Workers Compensation Insurance, and an All Risks policy. 

Whose name should the insurance be under?

When obtaining insurance, the insurance should be under the tenant’s name, with the landlord named as an Interested Party on the policy. 

What will I need to show the landlord once I get my insurance?

Your landlord will require a copy of the Certificate of Currency for the policy to verify that all the risks are protected before you will receive access to the premises. 

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