Insuring Commercial and Other Non-Standard Let Property

It is often perceived by landlords that insurance companies welcome, and perhaps perpetuate, any confusion surrounding their policies. It is done on the basis that it may advance their negotiating position when it comes to paying out. Perhaps they don’t have to pay out on a claim because they say they haven’t been fully made aware of the risk. We often hear of stories like this, but who’s right?

Many landlords wanting to increase income yields have expanded their portfolio to include different types of property. It is not unusual to find a mixture of commercial and residential property within one portfolio. But it is within these mixed portfolios that confusion and discrepancies can more easily occur.

Within the residential let sector, it is usual for insurance companies charge higher rates for non-standard lets, such as asylum seekers or 100% housing benefit claimants. Some schemes even have exclusions altogether for certain types of let, like short-term holiday lets and third-party leases to housing associations, to name but a few.

“With commercial property, the type of tenant description can be even wider. Disclosure to insurers of the actual circumstances on each property is paramount to ensuring you get the cover you need.”

Shops or offices with residential flats above

Insurers will need to know if the flats are self-contained with their own entrance and the exact trade or occupation of the commercial aspect of the building. They will also request the commercial annual rental income to insure the loss of income from the shop or office unit, as this is not automatically covered within the policy, unlike a residential policy.

A fish & chip shop, for example, may have more terms imposed on the cover, and correspondingly a higher premium than an ordinary administration risk such as an accountant’s office.

Private residential property let out in whole, or part, as an Airbnb

There can be what insurers describe as a commercial aspect to a residential let risk. Most landlords with property portfolios don’t usually get involved with Airbnb, but this type of let is becoming increasingly popular in the UK. Airbnb is a web-based company that enables anyone to let out a room, or indeed the whole property, on a night-by-night basis.

You may be the landlord of a block of flats and there may be residents in the block letting out a room on this site. If this is the case, you need to investigate if this would invalidate any of the cover from your current insurer. Airbnb hosts do get some limited insurance cover included within the hosting fees, but our understanding leads us to believe this is heavily restricted and may well not cover you as a landlord. Time limits also apply so please take special care.

Full commercial let property

Whether this is a retail premises, factory or an industrial unit, special care needs to be taken to ensure you get the right level of cover. Commercial insurance is more of a pick-n-mix policy rather than an off-the-shelf package. Meaning that not all the things you think should be covered automatically are.

For example, subsidence is an optional extra that needs to be selected, as does loss of rent following a valid claim.

What about any shop-front glass or signage, tenants’ improvements, or fixtures and fittings? The commercial lease normally outlines who is responsible for what. As landlords, you need to determine the scope of the protection you need to supply, and what is the responsibility of your tenants.

Bed & breakfasts and hostels

You may have described a property let as a standard HMO, but if cooking facilities exist in any of the individual rooms, and not in a designated communal kitchen, this may well be considered a B&B risk.

The property could be considered as a hostel if any tenants are put in via a third party, with no direct control or oversight by you or your managing agent. These tenants must be considered within the vulnerable sector, eg criminal or drugs rehabilitation, single women’s refuge, or assisted living tenants.

Again, this might not be what the insurance underwriter had bargained for and ammunition for a genuine claim may be refused.

Commercial property insurance, more than any other type of policy, is best suited to professional broking. The insurance company’s perception of a risk can often swayed by a good presentation. The more they understand the risk, generally the better the terms that can be obtained.

For the property owner themselves, it is imperative that any exclusions or conditions are thoroughly explained and pointed out. Now, more than ever, landlords are looking for professional and unbiased practical advice from their insurance broker to ensure that their scheme or contract is fit for purpose and suits their circumstances and requirements. It’s time to check whether your policy actually covers what you think it does.

By Paul Absalom