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As a tenant, it is common that a commercial lease will require you to take out insurance for the premises. The types of insurance extend to your use of the premises and aim to protect both the landlord and yourself during your tenancy. However, when it comes to insurance, it can sometimes feel like you’re just paying unnecessary extra fees. This article will explain the reasons why different types of insurance will benefit you in a commercial lease.

Why is Insurance So Important Under a Commercial Lease?

It is a common belief that insurance is unnecessary and that insurance companies are just out for your money. However, when it comes to your commercial lease, insurance is critical.

Imagine if someone stole your car and you didn’t have insurance. You would have to buy a replacement.

The same principles are at play with insurance under commercial leases. The landlord is protecting the premises by ensuring that if something happens, your insurance will cover the event. Therefore, insurance protects the landlord’s:

  • property;
  • interests; and
  • investment.

Subsequently, this means that you will likely not be forced to pay for the damages with your own finances. The majority of commercial leases require you to obtain insurance and name the landlord as an interested party on the policy. Or, you may have to obtain insurance directly with the landlord.

Some types of insurance that are commonly required under a commercial lease are:

  • public liability;
  • workers compensation;
  • plate glass window; and
  • general property and theft damage (all risks policy). 

In some cases, the landlord will own a group policy and cover you under that policy. Alternatively, some landlords try to specify the insurance company that they think you should choose. However, if the landlord is heavy-handed with recommending an insurance company to you, this behaviour could constitute an exclusive dealing.  This is not allowed under Australian consumer law. Therefore, you have no legal obligation to choose the insurance company that your landlord suggests.

Public Liability Insurance 

A commercial lease typically requires public liability insurance. A public liability insurance policy covers you and your business against third-party liability for:

  • personal injury;
  • death; or
  • loss to property.

Such injury, death or damage may be the result of your negligence.

For example, if a customer trips over in your premises and breaks their leg. Insurance would protect you from having to pay their medical bills out of pocket. 

Most commercial leases require a policy of at least $10 million (but more commonly $20 million) in place before the landlord will grant the lease to you. 

Workers Compensation

Every employer must provide workers compensation insurance for their employees. This is already an obligation in each state and territory across Australia and regulated by each state government. However, it is common for commercial leases to echo this obligation.

If your employees are harmed in the premises, the insurance will cover them. Your landlord will want this as it ensures that they will not be held legally responsible for paying compensation for any harm.

Plate Glass Window Insurance

Many commercial leases also require you to take out insurance to replace all plate glass windows on the premises. This is necessary to provide cover for any damage that the windows on the premises may accrue. This will secure the landlord’s interest in the premises.

It is common for plate glass insurance to require you to fix any damages to plate glass immediately after the damage occurs. This ensures that the premises are kept secure.  

All Risks Policy 

A commercial lease may also require you to take out an ‘all risks’ policy. This provides insurance for general events such as:

The future is unpredictable, and you never know when you may incur serious damages or become a victim of theft. Therefore, obtaining an insurance policy for all risks will keep your future secure.

Insurance Certificate of Currency

It is a common commercial practice for a landlord to insist that you provide a certificate of currency of insurance before allowing you access to the premises. This is because a landlord will want to receive confirmation that the risks are insured before allowing you to take possession of the premises.

In practical terms, this means you must ensure that obtaining insurance is one of the first things that you arrange when leasing new premises.

Key Takeaways

When leasing a property, you should determine what insurance you require. You should also ensure that you meet these requirements and provide a copy of the insurance to the landlord before the lease begins. Common types of insurance required by the landlord are:

  • public liability;
  • workers compensation;
  • plate glass; and
  • all risks.

If you have any questions about obtaining insurance for your commercial lease, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.


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