If you have decided to take out a commercial mortgage to purchase retail, office, manufacturing or warehouse space, making sure you get the proper property insurance is a crucial part of the purchasing process. Just as you would make sure you had the correct buildings and contents insurance on your residential property, it is just as important that you safeguard your commercial property against a range of possible risks.
There are lots of specialist policies available in the market that can provide you with the insurance you require. Indeed, many insurers will tailor a commercial property insurance contract to your specific requirements, based on the type of property that you own.
All the major potential disasters should be insured against, fire, flooding, storm damage, even hurricanes, earthquakes and tornados depending on what part of the globe you live on. If you are in a particular black spot for one of Mother Nature’s delights above, then expect having that insurance to be a prerequisite of the lender before they agree to a commercial mortgage.
There are a number of different factors that affect the premium you will pay for your commercial property insurance. For example, the location of the property may affect the price, particularly if it is in an area which has a flood risk. The type of property will also affect the price of insurance, as will the type of business that takes place in the property. Insurance on manufacturing premises or factories tends to be more expensive than commercial insurance on retail units or offices.
An important extra service that owners of commercial insurance can add to their policy is ‘loss of rent’ cover. If you are the owner of a commercial property, you might often count on rental income paid by your tenants in order to finance your commercial mortgage. This has risks, because if the building were to be rendered uninhabitable through fire or damage by the tenant, you could be left covering the mortgage payments without anyone to pay the rent.
If your property cannot be tenanted because of a risk covered under the policy (e.g. fire) then ‘loss of rent’ cover will compensate you for this loss. The amount of cover is generally a percentage of the buildings sun insured (around 15-20 per cent) and will typically run for a period of a year.
These days, commercial property insurance also includes a wide range of other options which you can tailor to your specific needs. One of the most common ‘add-ons’ is commercial contents cover. If you have provided some or all of the contents of a commercial property, you may want to ensure that this is covered in the event of theft, flood or fire.
You can also include some additional cover. One important area of cover that all landlords should consider is ‘property owners’ liability’. This provides cover if a third party or their property is damaged by your property – for example by a wall collapsing. Another type of important cover is ‘legal expenses cover’ which, as th name suggests, covers the cost of sometimes exorbitant legal fees if you have to settle a matter relating to your commercial property in a court of law.
Owners of commercial property who neglect to adequately insure their businesses do so at their peril. The current unstable economy is highly likely to leave landlords with at least part of the year where there are no tenants, and it is impossible to predict whether or not there might be damage to the property in the future.
That said, accessing the proper insurance policy isn’t difficult. The soundest strategy is to consult an insurance broker. Most Brokers will have a wide range of cover policies and be able to create a tailored insurance policy for your particular needs.
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