Commercial landlords, how aware are your tenants of their responsibilities in protecting your and their insurance cover?
There are requirements that all commercial tenants need to be aware of to ensure they do not compromise the Insurance Cover in place on the leased property. If the insurance cover is invalidated for any reason, then the tenant may be held legally responsible for any loss or damage to the premises.
Here is a helpful checklist that every tenant needs to follow to protect themselves and the property they occupy.
Tenants must adhere to a general duty of care to ensure that all reasonable action is taken to prevent loss or damage to the building and surrounding property. For example:
Keep all firefighting equipment (eg. fire extinguishers and hose reels) serviced and maintained
Maintain reasonable security precautions to prevent burglary & malicious damage (eg. lock doors, shut windows, maintain security alarms and exterior lighting etc.)
- Keep the premises clean and tidy — this includes the exterior of the building e.g. ensuring no pallets & other flammable material are stored against side of building.
- Promptly advise the landlord of any damage to the building
- Promptly advise the landlord of any maintenance issues
- Ensure that you and your business comply with all local body and statutory acts, regulations or by-laws.
Duty of Disclosure
The Landlord is required to disclose full details of the tenant’s occupation of the premises and the business being conducted to their insurance provider. If there is any change in the type of business activity at the premises, then it is essential that the Tenant let the Landlord know so they can in turn notify the Insurer.
The Insurer requires that any hazardous business activities must be fully disclosed such as (but not limited to) : –
- Deep fat Fryers
- Storage of any dangerous or hazardous substances (incl. a Dry Goods Store)
- Spray painting (in the building)
- Woodworking (e.g. producing sawdust and/or wood chip)
- Hot Work (e.g. welding) carried out at the premises
If your business activities have changed since you first occupied the building and this change could influence the decision of a prudent Insurer to accept the risk or set the terms and conditions of the insurance, then you must let your Landlord know.
Inspections
From time to time the Insurer may need to conduct a risk survey of the property. The tenant will be required to allow them access to the premises and assist them with any queries they may have in relation to risk and insurance.
The Insurer will contact the tenant first to advise of their intended visit, and will always provide proof of identity on arrival. From this inspection as a tenant you may be asked to make risk improvements to ensure continued insurance protection on the property can be provided. These may include things like improved housekeeping, servicing of fire appliances etc.
In the Event of a Loss
If a loss or damage does occur then there are a few things to remember.
1. You have a basic duty to minimise any loss once this has occurred and, in effect, to act as ¡f you were uninsured. In fact, it is a condition of most insurance policies that you do this. What does this mean? This can involve for example, the lifting of water soaked carpet, temporary shuttering or boarding of broken windows etc.
2. You should notify the landlord of any loss, accident, liability, or injury as soon as it is practical to do so. This is so the landlord can take the appropriate action to inform insurers, appoint assessors and generally arrange prompt repairs. Insurers are generally not liable to pay additional costs incurred as result of late notification.
3. Know what you are liable for. The owner’s policy will usually cover the building, including building improvements. The tenant’s policy will usually cover not just the tenant’s personal property and fixtures but also tenant improvements, installed by the tenant, in the leased space.
Most importantly for both the landlord and the tenant is to have a clearly drafted lease agreement that states the insurance requirements for tenant improvements, whether assumed by the tenant or owner; specifically, a line listing the insurance requirements to be carried by each party and for which property. As an example, if the tenant is required to insure the improvements, it should clearly state that the tenant’s insurance is to cover that property, including its removal from the space if the building is damaged.
