Most commercial leases require the tenant to hold public liability insurance at a stated limit, to insure their own fit out, stock and glass, and to give the landlord a certificate of currency before occupation and at each renewal. Many also require the landlord’s interest to be noted on the policy. These obligations come from the lease itself rather than from legislation, so the wording in your document decides what you have to buy.
Where the insurance clause sits, and what it binds you to
In a commercial or retail lease the insurance obligations sit in one clause near the middle of the document, headed Insurance or Tenant’s Insurance, with related duties spread through the indemnity, repairs and default clauses. That clause is private contract law. No general statute tells a tenant to carry public liability at a particular limit. The landlord writes the requirement and you accept it at signing. Commercial lease insurance requirements therefore differ from one shopping strip to the next, and the only way to learn yours is to read the document in front of you.
There is time to do that. The Victorian Small Business Commission states that as soon as negotiations start the landlord must give the tenant a copy of the proposed lease and the VSBC information brochure for tenants, and that a disclosure statement must be given at least 14 days before the lease is entered into. Ten minutes on the insurance clause before signature beats a year of argument after it.
The obligations that appear in almost every lease
- Public liability at a stated limit. Commonly 10 million or 20 million dollars for a strip shop, office or small warehouse tenancy. A landlord with a financier behind it may ask for more.
- Your own property. Fit out, fixtures, plant, stock and often plate glass, insured at full replacement value rather than book value.
- Workers compensation where you have staff. business.gov.au lists workers compensation as a cover a business may need by law once it has employees, along with public liability for certain occupations in some states and third party personal injury where the business uses vehicles.
- Proof. A certificate of currency before you take possession, and a fresh one at each policy renewal for the term of the lease.
- A negative obligation. A promise not to do anything at the premises that would void the landlord’s own policy or lift its premium. This clause bites when a fryer, a spray booth or a battery store arrives and nobody tells the insurer.
A strip shop usually meets all five inside one package, as our retail shop insurance page sets out.
Noting the landlord’s interest, and the requests that go further
Most leases ask for the landlord’s interest to be noted on the tenant’s liability policy. In practice the broker asks the insurer for the endorsement and the certificate of currency then shows the landlord’s name against the policy, so the landlord has the benefit of the cover for claims arising out of your occupation of the premises.
Some leases go further. They ask for the landlord to be named as an additional insured, for a cross liability clause, or for the insurer to give up its right of recovery against the landlord. Those are three separate requests, priced differently, and not every insurer agrees to all of them. Send the clause to your broker word for word. A paraphrase is where the mismatch starts, and it surfaces when the agent rejects the certificate two days before handover.
Insurance as an outgoing: you may be paying for the landlord’s policy too
Under the Retail Leases Act 2003, the VSBC states that a tenant is not liable to pay outgoings except where the lease details them. It also states that the landlord must give a written estimate of the outgoings the tenant is expected to pay, before the lease is entered into and at least one month before each of the landlord’s accounting periods, and that the tenant is not required to pay outgoings if that estimate has not been given. The annual statement of the landlord’s expenses, the VSBC adds, need not be audited where the tenant pays only GST, utilities, council rates and insurance with proof of payment attached.
Insurance sits in that list for a reason: a share of the landlord’s building premium is one of the most common outgoings passed to a retail tenant. A shop can pay part of the building policy and hold a full package of its own, and neither replaces the other. Ask which policies sit inside the estimate and ask for the invoice, because a premium that jumps at renewal lands on your monthly figure too.
What the landlord’s policy does not do for you
A commercial property owner policy insures the building, the landlord’s fixtures, the rent the owner loses and the owner’s liability. It stops at the boundary of the tenancy, so your fit out, your stock and the trading you lose sit outside it. After a fire the landlord’s insurer rebuilds and the landlord draws loss of rent, while the tenant has no premises, no income and a fit out to pay for twice. That gap is what business interruption insurance answers, and some leases now require it.
Two more lines to read. Many leases make the tenant responsible for damage caused by the tenant or its customers even where the landlord holds building cover. And where the landlord’s insurer pays for damage you caused, it may look to recover that money from you unless the lease or the policy says otherwise.
The checks worth making before you sign
Commercial lease insurance requirements are cheap to fix at the draft stage and expensive to argue about later. Six lines are worth the time:
- The liability limit, and whether it matches the worst thing that could happen at your premises rather than the number in the landlord’s template.
- Who insures the shopfront glass. It is valuable, it breaks, and leases split it both ways.
- Whether business interruption or loss of rent cover is required, and for how many months.
- The permitted use, which must match the trade description your insurer holds. A lease that says retail and a policy that says takeaway food is a problem waiting for a claim.
- When the certificate of currency is due, and which agent or asset manager wants it.
- Which insurances appear in the outgoings estimate, and at what figure.
What FRS does: we read the insurance clause of the lease you were handed, list every obligation it creates, and place cover that answers each one in the words the lease uses. We issue the certificate the agent asks for, note the landlord’s interest where the lease requires it, and diarise the renewal. Where a clause asks for something an insurer will not grant, we say so before you sign.
If you are reviewing a lease now, start with our public liability insurance page and send us the clause.
Frequently asked questions
Can a landlord dictate my public liability limit?
Yes, within the lease. The limit is a contract term the landlord proposes and you accept at signing, so it is negotiable beforehand and binding afterwards. Limits of 10 million or 20 million dollars are commonly requested for shop, office and small warehouse tenancies. Check the figure against your own exposure, not only against the clause.
What does noting the landlord's interest actually do?
It records the landlord on your liability policy so the landlord has the benefit of that cover for claims arising out of your occupation of the premises. Your broker asks the insurer for the endorsement and the certificate of currency then shows it. Being named as an additional insured, or a cross liability clause, is a separate and larger request.
Do I have to pay for the landlord's building insurance?
Only where the lease says so. The VSBC states that a retail tenant is not liable for outgoings unless they are detailed in the lease, and that the landlord must give a written estimate before the lease starts and before each accounting period. Insurance is one of the most common outgoings passed on, so ask which policies are in the estimate.
What happens if I miss a certificate of currency deadline?
Failing to produce evidence of insurance is usually a breach of the lease, which can trigger a default notice even where the policy is current. Most of these are administrative rather than genuine gaps in cover. Keep the renewal date and the agent’s email in one place, and have your broker send the certificate the day the policy renews.
