Who is responsible for insuring a commercial property?
Most commercial properties are insured by both the landlord and the tenant. The landlord typically insures the building itself, while the tenant insures their own business gear and the space that contains their storefront, office, warehouse, etc.
For example, if a fire damages a strip mall, the landlord’s insurance could help with repairs to the building, while each tenant’s insurance may help cover their own damaged inventory and lost income while the building is closed for repairs.**
Commercial landlords typically insure the building structure
Generally, landlords are responsible for the structure, shared spaces and other features of the property that tenants don’t own or control (like plumbing systems or outdoor lighting).
A landlord’s insurance coverage can often help protect:
- The building structure, including the foundation and framing, roof and exterior walls.
- Permanent fixtures such as plumbing, electrical systems and HVAC.
- Common areas such as hallways, lobbies, elevators, stairwells and parking lots.
- Outdoor structures on the property such as signage, fencing or lighting.
Basically, if it stays behind when a tenant moves out, there’s a good chance it’s the landlord’s responsibility to insure. Make sure your lease agreements outline in clear terms who insures what.
In addition to protecting the physical building, landlord insurance could also help protect commercial property owners from liability and legal actions. For example, a visitor could slip and fall in a common area, or falling debris from the building could damage someone else’s property. In cases like these, the insurance on your property may help protect you from some legal costs, judgement and settlements.
That’s one reason many landlords carry general liability insurance coverage. It could help if someone claims they were injured because of a condition on the property, or that the property caused damage to their belongings.
Commercial tenants usually insure the business property they own
While landlords insure the building, commercial tenants are usually responsible for insuring the things that keep their business running.
These assets might include:
- Inventory and stock on premises.
- Business equipment, machinery and tools.
- Office furniture, flooring, fixtures and electronics.
- Tenant improvements and betterments (like customer shelving or upgraded lighting), depending on lease terms.
- Business income losses if you have to close for repairs temporarily after a covered event such as a fire, storm damage or a burst water pipe.
If the tenant could pack it up and take it with them when they move out, it’s usually their responsibility to insure it.
Tenants can also be responsible for accidents connected to their business. For example, if a customer suffers an injury inside their store or an employee accidentally damages someone else’s property, it would likely fall on the tenant.
Liability coverage can get confusing because both landlords and tenants often carry different types of liability coverage. The difference is that each policy is meant to protect a different party. A landlord’s coverage is generally focused on risks tied to owning and maintaining the property, while a tenant’s coverage is focused on the business operating inside it.
Lease agreements often determine commercial property insurance requirements
Commercial lease agreements usually spell out the insurance responsibilities of both landlords and tenants, and this can help reduce confusion and coverage disputes.
In many cases, the lease doesn’t just recommend insurance — it requires it. A tenant may need to carry certain types of coverage before they’re allowed to sign a lease or open for business.
Lenders often have requirements, too. If you finance a commercial building, your lender may require specific coverages to help protect the property throughout the life of the loan.
Common lease and lender insurance requirements include:
It’s good to review this information before signing a lease or closing on a property.
What type of insurance could benefit a landlord most?
Owning a commercial building comes with more than one type of risk. A storm can damage the property, a visitor could get hurt in a common area or a covered event might leave tenants unable to use the space (and pay their rent) for months. That’s why many commercial landlords carry more than one type of insurance policy to help cover multiple “what ifs”.
Commercial Property insurance
Commercial property insurance is often the foundation of a landlord’s coverage. It can help cover costs related to the building structure itself, including the roof, walls and other permanent features that would be expensive to repair or replace.
If a covered event — like a fire or vandalism — damages the property, this coverage could help pay for expenses to fix the structure.
Property damage can also interrupt your rental income. And commercial property insurance coverage could help with that, too.
For example, if a broken water pipe forces tenants out of the building for repairs, you may lose out on rent during that time. Loss of rental income coverage could help replace some of that lost income while the property is being restored.
General Liability insurance
Even if the building is well-maintained, accidents can happen. Someone could trip in a shared hallway, slip on a wet walkway or claim the property caused damage to their belongings. General liability insurance could help if a visitor, vendor or the general public claims they were injured or suffered property damage connected to the property.
BOP insurance combines property coverage and liability
A Business Owner’s Policy bundles general liability insurance and commercial property insurance into a single policy that could cover property, liability and lost rental income. And for many lessors, it’s often more cost-effective than buying two separate policies. A BOP could help with damage to your building, injuries that occur on your property and lost income if an incident forces tenants out.
Additional coverages landlords may consider
Depending on the building, its location and the types of tenants you have, landlords might also consider:
What types of insurance could benefit commercial tenants most?
Tenants are responsible for protecting the business operating inside the property they lease. Coverage for commercial property renters depends on what you do, the terms of your lease and whether you have employees.
General Liability insurance
Running a business comes with its own set of risks. Customers visit your space, deliveries come and go, and accidents can happen even when you’re careful. General liability insurance could help if someone claims they were injured at your business or that your operations caused damage to their property.
In fact, many landlords require tenants to carry this coverage before they can move into a commercial space.
Commercial Property coverage
Even if you don’t own the building, you probably still own a lot of what’s in the space you’re renting. Commercial property coverage could help protect company computers, POS systems, furniture and other items your business relies on every day.
This part of commercial property insurance is often referred to as business personal property (BPP) coverage. It may help protect items such as:
- Inventory and stock
- Equipment and tools
- Furniture and fixtures
- Computers and electronics
Another part of commercial property coverage for business owners is business interruption coverage, also called business income insurance. If a covered event, like theft or vandalism, temporarily forces you to close or scale back operations, this aspect of your policy could help replace lost income and cover some ongoing expenses while you recover.
At ERGO NEXT, commercial property insurance includes both business income insurance and business personal property coverage.
Workers’ Compensation insurance
If you have employees, workers’ compensation insurance is usually a required coverage in most states. It can help cover medical expenses, lost wages and other benefits if an employee gets hurt or becomes ill because of their job.
Compare: Commercial landlord insurance vs. commercial property insurance
These two types of coverage are often confused, since both could help protect a building from damage. The difference comes down to how the property is being used.
- Commercial property insurance focuses on protecting the structure and other covered property from events such as fire, wind or vandalism.
- Landlord insurance is designed for property owners who lease space to tenants. In addition to helping protect the building, it may also include liability coverage and protection for lost rental income after some covered events.
| Commercial Property Insurance | Landlord Insurance |
|---|
| Focuses on protecting the physical building and business property | Designed specifically for owners of rental properties |
| Covers damage from covered events such as fire, theft or certain weather-related losses | Covers the rental property structure and may include additional landlord-specific protections |
| Can be purchased as a standalone policy | Often bundles multiple coverages into one policy package |
| Primarily protects the property itself | Helps protect both the property and the landlord’s rental income exposure |
| May include optional endorsements and add-ons | May include liability coverage and loss of rental income coverage |
Landlords and tenants: Which type of insurance coverage is right for you?
Are you running a business from the building, or are you renting the building to someone else? That answer will often point you toward the type of coverage that makes the most sense.
- Owner-occupied buildings: If you own the building and your business operates there, commercial property insurance is often the foundation of your coverage. Many business owners also combine it with liability coverage and other policies that fit their industry.
- Tenant-occupied buildings: If your primary role is collecting rent and maintaining the property, landlord insurance is often a better fit because it addresses risks that come with being a property owner rather than a business occupant.
- Multi-tenant properties: Properties with multiple tenants often have additional considerations, especially when it comes to common areas and shared responsibilities.
- Mixed-use commercial properties: Buildings that combine retail, office, restaurant or residential space can be more complicated. The mix of tenants and activities may require coverage that’s tailored to the property’s specific risks.
