Liability for insurance premiums and business rates for commercial property

Payment of Insurance and Business Rates


Payment of Insurance Premiums and Business Rates

All leases must set out who is responsible for arranging and paying for insurance cover and paying business rates.

Who insures the premises? 

The landlord almost always insures the premises and recovers the premium (or a proportion of the premium in the case of a shared building) from the tenant. Buildings insurance is typically for the full reinstatement cost including demolition costs, professional fees and other expenses. The lease will include a covenant by the landlord to reinstate the premises if they are damaged or destroyed by an insured risk.

The landlord is also likely to insure against loss of rent, usually for a period of 3 years, in the event that the premises are damaged so as to be unfit for occupation or inaccessible. When such damage occurs, the tenant will generally have its rent suspended (or reduced if only part of the premises is affected). This insurance will provide the landlord with an income for the duration of the rent suspension.

Many landlords also take out public liability insurance to cover any liability for injury to or death of a person on the premises, or for loss of or damage to property.

Occasionally landlords will maintain contents insurance. If they do it is likely to cover only items owned by the landlord. The tenant will need to take out its own contents insurance for its possessions at the premises. 

Who pays business rates? 

The liability for paying business rates rests with the tenant, unless the tenant is paying an all-inclusive rent which is expressly stated to include rates.

Business rates can be very costly and if the property is unlet the landlord becomes liable to pay them. This is one reason why landlords are keen to avoid their premises being unoccupied for long periods (known as rental voids).

Some occupiers are exempt from paying business rates, or pay a reduced rate. Charities and other non-profit making organisations, sports clubs and small businesses may be able to claim a reduction or exemption. The details need to be checked with the local authority in question as there are regional variations.

An empty property is usually exempt from business rates for a period of three months (or six months in the case of certain industrial properties). After this period, rates are payable in full. Leases often include a provision whereby the tenant is not permitted to claim empty property relief if it vacates the property during the term of the lease, so that the full relief is available to the landlord. Tenants will argue that such a restriction is unfair and this tends to be a controversial provision.

Top