What sort of risks are Commercial Property Owners exposed to and what insurances are there?
Being a Commercial property investor or Landlord is not without risk and no matter what your personal circumstances are for being a Commercial Property Investor some areas of risk you should consider are;
The first issue – who is insured?
If you own a commercial property or unit, you may be using it as an investment that you rent out, or you may be occupying it yourself to run your business or both. Where you are also occupying the premises it is critical that you clearly understand the issues if the property is owned by one entity (such as a trust, or a company name), and the business is operated under another entity. This would mean there is more than one legal entity involved and each has its own insurable interest, legal responsibilities and liabilities, even to each other! Discuss this with your insurance adviser.
The property itself
The premises should be insured for its full replacement value. so that in the event of a major loss like a fire, earthquake, volcanic eruption or other similar event, the risk of having to find the money to properly rebuild your investment is transferred to an insurance company. The replacement value you nominate should be adequate to cover the true cost of rebuilding, an allowance for a minimum of 2 years inflation, demolition costs, with adequate allowance for architect, engineers, building and resource consent costs. Partial losses requiring demolition of non-damaged structures can be dearer than building from new on an empty site. So replacement insurance not indemnity insurance (present value) is always recommended. We also recommend getting a replacement valuation annually.
Landlord Plant, Fixtures and Fittings
Make sure these are insured in addition to the building you are renting out and if improvements left by a previous tenant have legally been transferred to you at the cessation of a lease, make sure these have been included in the valuation and included in the insurance.
Loss of rents
When the building is damaged and unusable, your rental income is likely to stop. However the bills for rates, insurance, property management fees, fixed water and any mortgage payments continue. Even if there is no mortgage you may be very reliant on a return on your investment for other needs. Make sure your insurance covers loss of rents from events that render your building unusable.
There are a number of areas of liability you should consider. Some of these are; liability as a landlord and property owner, for damage to the property of, or personal injury to; your tenants and neighbouring or adjoining properties, and the tenants and their businesses that operate within them. In addition to these liabilities are those imposed by the government through Statute, such as Health and Safety.
Mortgage protection insurance
If meeting the mortgage commitments are reliant upon you working in addition to receiving the rental income, you should consider mortgage repayment insurance, so that in the event of illness, accident or death these payments can be meet, or the loans repaid in full.
All insurance policies differ in the fine print and they all have different exclusions and conditions, so do not make the fatal mistake of comparing insurance on price alone. Also ensure the policy meets your needs, has your adviser properly evaluated your risks. One size does not fit all. The Christchurch earthquake highlighted that.
If you need any assistance in this area, we suggest you contact either Gayleen Mackinnon or Peter van Baarle of Marsh Insurance Brokers for further information. Gayleen, Peter and the team at Marsh look after many of our Property Investors.
Contact Peter van Baarle today.