Insuring a Commercial Building
1. Your Operations
Business operations influence the decision to purchase or lease. For example, a real-estate agent doesn’t have the same needs as a mechanic. It’s easy to make the case that leasing is a better option for the real-estate agents because they are more often than not away from their office. This is not to say that purchasing isn’t a good option for agents. The point here is that the decision will impact insurance—it may cost you more or make it difficult, if not impossible to get insurance.
2. Key Risk Factors
When thinking about commercial building insurance, we tend to focus on the most obvious risks like civil liability, fire, theft and vandalism.
However, there’s also :
- Inexperienced staff
- Obsolete technology
- Inadequate workspace
- Lack of training
- Insufficient maintenance
Location is also a factor. Is the building in a flood zone ? These could cost you a lot in insurance if you fail to practice sound risk management. Your insurer may force you to reduce some coverage, increase your deductibles or deny you altogether.
3. As Owner
You own the building, so you are entirely responsible for risk management.
To calculate the premium, insurers will require that you have your building’s condition evaluated by a professional inspector on a regular basis (every year, two years, etc.). The inspector will outline in a report the required maintenance, expected renovations as well as potential damages.
The insurer will base the coverage options as well as the insurance amounts on the risks identified in the report.
If you must finance your building, know that the lender could require you to add specific clauses to your insurance contract.
4. As Tenant
Typically, the insurance needs of tenants are lesser than those of owners, simply for the fact that they share the responsibility with the lessee.
As far as civil liability is concerned, you could add Tenant’s Liability, which covers damages caused to the space you are renting.
In some cases, the lessor will also require you to take out specific coverage.
To protect themselves from eventual lawsuits, lessors could require you to add them as an additional insured or even add a waiver of subrogation clause to your lease. If that is the case, speak to your insurance representative to find out how this will affect your insurance.
5. Operations of Other Tenants and Neighbours
If you’re not the only tenant and if there are neighbours within 30 metres of the building, your insurer will consider the nature of their activities when calculating your premium. You could even be denied if you lease or own a building near a bar or company that uses hazardous materials.
Before signing a lease, be sure to ask the lessor for their tenant selection criteria. You will therefore reduce the chances that the office space next to yours will be leased to a company whose activities may be considered a risk by your insurer.
Your insurance representative is there to advise you and help you protect your business investments. Please reach out to your representative before signing a lease or purchase agreement !