All commercial leases require the tenant to:
- Obtain insurance; and
- Either name the landlord as an interested party on the policy or obtain insurance with the landlord.
Some of the types of insurance commonly required are:
- Public Liability;
- Workers Compensation;
- Plate Glass Window; and
- General property/theft damage (All Risks Policy)
We explain below why it is important for Tenants to obtain such insurance under their commercial lease.
Why is Insurance So Important Under a Commercial Lease?
Some people believe insurance unnecessary, or see insurance companies as evil. Insurance, however, is critical. Imagine if someone stole your car, and you didn’t have insurance? You would have to buy a replacement.
The same interests are at play with insurance under commercial leases. The Landlord is protecting their property, ensuring that if something happens, the Tenant’s insurance will cover the event.
Public Liability Insurance
A commercial lease typically requires public liability insurance. A public liability insurance policy covers the insured tenant and the tenant’s business against third-party liability for:
- Personal injury,
- Death, or
- Loss to property.
Such injury, death or damage may be the result of the negligence of the insured tenant. For example, if a customer trips over in the premises leased by the tenant and breaks their leg.
Most commercial leases require a policy of at least $10 million (but more commonly $20 million) in place before granting the lease to the tenant.
Every employer must provide workers compensation insurance for their employees. While this is already an obligation in each state and territory across Australia, and regulated by each state government, some commercial leases will echo this obligation.
Plate Glass Window Insurance
Many commercial leases also require Tenants to take out insurance to replace all plate glass windows in the Premises. This is necessary to provide cover for any damaged windows to the Premises and keeping the Landlord’s interest in the Premises secure.
All Risks Policy
A commercial lease may also require a Tenant to take out an “All Risks” policy that provides for general insurance events such as theft of the tenant’s stock, damage from flood and fire, protection against theft and other general insurance events.
Review the Lease
The key take aways from our insurance overview? When leasing a property, a tenant should:
- Review the lease (or have a commercial leasing lawyer review the lease);
- Determine the insurance requirements;
- Obtain a quote as to insurance requirements; and
- Ensure that all insurance requirements are met before the lease begins.
As part of the insurance requirements, the Landlord will want to be named as either an interested party on the Tenant’s insurance policy or jointly named on the policy. This provides the Landlord with certain rights to make claims or at the very least enquiries with the insurance company as to whether the insurance is current, or there has been a claim against the insurance policy.
In some cases, the Landlord will own a group policy and cover the tenant under that policy. Alternatively, some Landlords try to specify the insurance company that the Tenant should choose. Note that if the Landlord is heavy-handed in this regard, it could constitute an exclusive dealing under the Australian Competition and Consumer Act 2010 (Cth) and if the tenant should obtain legal advice.
Commercial leasing is a minefield. Get legal advice from the outset. Our commercial leasing lawyers can help you understand the insurance and other requirements under your lease.
Questions? Get in touch on 1300 544 755.