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What Loss of Rent Insurance Covers
Loss of rent insurance covers the rental income a property owner loses while a building cannot be occupied because of insured damage, for a set indemnity period. It is a section of a commercial property owner policy or a landlord policy rather than a product on its own, and it is the section that keeps the loan paid when the tenant cannot trade or live in the building.
The loss follows the damage. A fire takes the ground floor shop and the tenant cannot open for eight months. A burst pipe floods an apartment and the tenant moves out while it dries. Storm damages the roof of a warehouse and the lease allows the tenant to stop paying while the premises are unusable. In each case the mortgage, the rates and the insurance premium keep arriving while the rent does not.
Most commercial leases include a rent abatement clause that suspends rent while the premises cannot be used, and residential tenancy laws allow a renter to end a lease or claim a reduction when a property is uninhabitable. The owner's public liability insurance answers injury claims; loss of rent answers the income. For a business that occupies its own building, business interruption insurance does the same job for trading income.
Fortis Risk Solutions arranges loss of rent insurance for commercial and residential owners across Australia from offices in Box Hill and Hawthorn, as part of our business insurance range. We read the lease to see how rent is treated after damage, set the sum insured on the actual rent roll and the indemnity period on a realistic rebuild, and place the section inside commercial property owner insurance or landlord insurance as the property requires.
Who this covers
Businesses in this group include:
- Commercial property owners with tenants
- Residential landlords and investors
- Owners of mixed use and multi-tenanted buildings
- Industrial and warehouse property owners
- Owners corporations with common property income
- Self-managed superannuation funds holding property
If your business is not listed, ask us. The sections below are the starting point for any business in the group.
Loss of Rent Insurance: Cover Sections and Benefits
Loss of Rent Insurance FAQs
The rent the owner would have received while the building, or part of it, cannot be occupied because of damage the policy covers, such as fire, storm or escape of water, for up to the indemnity period in the schedule. Some wordings add the outgoings the tenant would have paid. It does not pay for a tenant who leaves for other reasons or for a vacancy between leases. Owners corporations hold the equivalent for common property under strata insurance.
Long enough to rebuild and to find a new tenant if the old one does not come back. A fit-out can take three months; a structural rebuild with council approvals can take a year or more; a specialised building longer. Twelve months is the common default and is often too short for anything beyond a cosmetic repair. The period is a choice, and it costs less to extend than owners expect.
Not under the standard section, which only responds to insured damage. Rent default is a separate cover offered under landlord insurance for residential tenancies, paying a set number of weeks of unpaid rent after the tenant defaults and the required notices are served. Commercial rent default is rarely insurable and is managed through the lease, the bond and the guarantee instead.
They do the same job for different people. Loss of rent replaces an owner's rental income; business interruption replaces a business's trading income. An owner who also trades from the building can need both, the second inside a business insurance package. The sum insured for loss of rent is set on the rent roll, and the sum insured for business interruption is set on gross profit and fixed costs.
On the total annual rent and recoverable outgoings for the building, multiplied by the indemnity period in years, with an allowance for rent reviews during that time. Under-declaring the rent roll can reduce a claim in proportion, in the same way as underinsuring the building itself, so the figure should come from the current leases rather than from an old schedule.
The section turns on the lease, the indemnity period and the definition of damage that triggers it. FRS reads the abatement clause in each lease, sets the sum insured on the real rent roll, matches the indemnity period to the building and places the cover inside a landlord insurance or commercial property owner insurance policy, then acts as your advocate when the claim runs for months. Larger portfolios sit under our commercial and industrial property insurance group.
Talk to a broker about Loss of Rent Insurance
Call 03 7046 3766 on weekdays between 9:30am and 6pm, email admin@fortisrisksolutions.com.au, or send an enquiry and a broker from our Box Hill or Hawthorn office will come back to you about loss of rent insurance. Tell us what the business does and what the lease or contract asks for, and we take it from there.