The Hidden Risks in Commercial Leases: What Landlords Must Insure vs. What Tenants Must Insure
- Clarke Lyons Insurance
- 5 days ago
- 3 min read
Commercial leases are complex documents filled with detailed clauses outlining the responsibilities of both landlords and tenants. Yet one area often misunderstood — and frequently disputed — is commercial property insurance.
Whether you’re a landlord protecting an investment or a tenant running a business, understanding who must insure what is essential to avoiding financial loss, legal disputes, and rejected claims.
This guide breaks down the key insurance obligations in most commercial leases and reveals the hidden risks many parties overlook.
Why Insurance Clauses in Commercial Leases Matter
Commercial leases typically shift a large portion of risk between the parties. The insurance requirements found in these agreements directly affect:
Who pays for property damage
Who is responsible for liability claims
What happens if the premises becomes unusable
Who pays for loss of rent or business interruption
A misunderstanding of these obligations can lead to severe gaps — especially when it comes to commercial property insurance and related coverage.
What Landlords Are Typically Required to Insure under a commercial lease
While every lease differs, landlords normally insure:
1. The Building (Commercial Property Insurance)
Landlords must insure the physical structure, including:
Walls, roof, floors
Fixed plant and equipment
Services (electrical, plumbing, fire systems)
Common areas
Lifts and essential services
This is usually covered under a commercial property insurance policy.
2. Public Liability – Landlord Portion
Covers injuries to third parties on common property or areas under the landlord’s control.
3. Loss of Rent
If the property becomes uninhabitable after an insured event, the landlord can claim lost rental income during repairs.
4. Building Reinstatement & Replacement
Landlords generally must insure the property for full reinstatement value, not market value — a critical distinction.
What Tenants Are Typically Required to Insure
Tenants are often surprised by how much risk they carry.
1. Contents, Stock & Equipment
Anything not permanently attached to the building must be insured by the tenant.
2. Fit-Out & Improvements
Tenants are usually responsible for:
Internal partitions
Counters & display units
Flooring changes
Commercial kitchens
Medical or office fit-outs
Many leases explicitly state that tenants must insure their own fit-out, even if it becomes part of the building.
3. Public Liability – Tenant Portion
Tenants must insure liability for customers, clients, or contractors entering their leased space.
4. Business Interruption
If the tenant cannot trade due to fire, storm, or other insured events, business interruption insurance protects revenue, wages, and cash flow.
This is separate from the landlord’s loss of rent.
The Most Common Risks Hidden in Commercial Leases
1. Fit-Out Confusion: Who Pays for Damage?
Many tenants assume the landlord insures the fit-out.Most leases say the opposite — leaving tenants exposed to large losses after fires or water damage.
2. Underinsurance of the Building
If the landlord underinsures and a major event occurs, tenants may be unable to trade for months — even if they had no fault in the damage.
3. Gaps Between Landlord & Tenant Liability
If common areas aren’t clearly defined, liability claims can be rejected.
4. Storm & Water Damage Exclusions
Certain policies exclude stormwater ingress unless specific endorsements are added — leaving both parties at risk.
5. Misalignment Between Lease Requirements & Actual Policies
It’s common for tenants to carry inadequate cover because they never matched their policy to the lease requirements.
Why Clarke Lyons Insurance Should Review Your Lease
Clarke Lyons Insurance works closely with commercial landlords, tenants, and property managers to ensure all parties are correctly protected.
Our specialists:
Review your commercial lease to identify hidden risks
Align your policies with legal obligations
Structure complete commercial property insurance protection
Advise on fit-out, liability, and business interruption cover
Assist at claim time to minimise downtime and disputes
We help you avoid expensive legal issues and ensure everyone understands their responsibilities clearly.
When Should You Review Your Insurance?
Signing a new commercial lease
Renewing an existing lease
Adding or modifying a fit-out
Changing business activities
Buying or selling a commercial property
Experiencing a claim or near-miss
Speak with Clarke Lyons Insurance
Whether you’re a commercial landlord or a business tenant, understanding your insurance obligations is essential. Clarke Lyons Insurance provides premium, tailored advice on commercial property insurance, liability, fit-out, and business interruption solutions.
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