Commercial property owners need to ensure their insurance policies integrate and work together with their lease agreements in order to avoid financial loss. Not only can you find yourself under-insured, but you can also find your lease agreement and your insurance policies over-lapping which leads to unnecessary payment of excess premium. It is imperative for the property owner and the tenant to both be aware of who is responsible for the various insurable risks associated with commercial property.


Commercial property owners need to be aware that their lease agreements should clearly define what the responsibility of the property owner is and what is the responsibility of the tenant.  Many lease agreements however, are a standardised document which does not always directly address the insurable requirements of each party.  The insurance policy should be considered when preparing the lease and visa-versa.

Lease and Commercial Property Insurance Issues

The lease agreement and the property insurance should dove-tail with each other, working together cohesively to provide comprehensive and concise cover.  Both are binding contracts, so it is critical that the conditions included in both contracts marry.


In most cases however, this is not the case and this is where property owners and tenants can experience financial loss. 

Lease wording

It is common practice for property owners to specify to the tenant in the lease that they will be passing down the costs of the insurance to them.  The type of insurance engaged by the property owner may overlap with the insurance taken out by the tenant, therefore overlapping and wasting money for both parties.  And to counter this, the type of insurance policies in place may even miss major parts of the property owners requirements.  Meaning that the property owner is left open to financial loss.

It is our recommendation that the property owner take out the insurance for the property and outline what is and what is not covered to the tenant.  Your most valuable asset should always stay within your control and the insurance policy is a key part of this. When it comes to renewal, adjustment of policy and comprehensive cover, a professional commercial property insurance broker will do it best – this is not something to put in the hands of an inexperienced tenant.

General coverage

When revising your lease agreement and your property insurance policy, there are some common policy elements to cross-reference with your lease agreement.

Public Liability – If maintenance issues, toxic substances on the premises, incorrect building techniques or other property issues cause damage to third party property or result in personal injury, the property owner can be held liable. 

For example, not maintaining a shade cover on the premises which then falls down, injuring a person or damaging a car parked underneath could lead to the property owner being held liable and having to pay the costs for repair and medical bills.  Public liability insurance will ensure that these costs are covered by the insurer.

Property owners can also be held vicariously liable for incidents where their contribution or fault in a claim is only limited. Even though they may be deemed to have only a small degree of liability the potential for significant costs to defend a claim is present. If a Public Liability policy is held, your insurer meets these defence costs instead of drawing from your own cash reserves.

Contents and Glass – This type of insurance is generally taken out by the tenant.  Whatever fixtures within the building such as contents, plant, fit-out and stock are the responsibility of the tenants to insure within their own insurance program. Glass windows and displays can also be covered by their insurance policy which is generally reflected in the lease agreement 

Machinery and Plant – The insurance for the machinery breakdown of plant and equipment includes elements such as air conditioning, electric gates, elevators and automatic doors. Lease conditions can enforce either party (owner or tenant) responsible, ensure this is clearly drafted and insured accordingly.


Loss of rental income – The lease can state that the tenant is responsible for the payment of property owners insurance.  This can also be extended to include the protection against loss of rental income.


At Challenge Insurance Services we have access to the best possible products to insure your commercial property and take away the worry of being underinsured. We have the experience, knowledge, and contacts to deal with your property insurance and claims effectively and most importantly have an in depth knowledge of lease agreements.  Contact us today for some advice and a quote, we will be more than happy to help you.