Guide to Commercial Property Insurance

What is Commercial Building Insurance? -  This type of insurance relates to any type of property that is used as a business, such as an Office, Shop, Factory etc. Insurance for commercial buildings usually follows a similar set of perils that you would expect to receive under a residential building insurance policy. These would include all the usually perils such as fire, lightning, explosion, earthquake, storm, fire, flood etc. The " commercial element of the risk is often the factor that greatly influences the premium that is offered. Insurance companies will want to know how the building is occupied and any " trade processes" that are being carried out on the premises. These trade processes help the insurance company to calculate the degree of risk and in turn the premium you will be charged. Offices tend to attract the lowest rates with fast food catering establishments or factories involved in certain types of manufacturing will attract the highest. As well as the occupation of the buildings, the insurer will require to know the postcode. From this information they can calculate the properties exposure to any increased risk from flooding or even subsidence. Of course, you will still need to disclose this information at the to of the quotation.

When buying insurance for a building used for commercial purposes the policy will usually include a sum insured for loss of rent. This is not to be confused with loss of rent caused by tenant default, it is loss of rent cover caused by peril. For example if you are unable to collect rent because of a fire or a flood at the premises, the policy will pay out a sum insured. The amount of cover is usually expressed as a percentage of the building sum insured, 20 % is typical although some insurers will provide less than this. Cover is mainly provided for 12 months, if you think you will need longer than ( perhaps if your building is listed and any reinstatement building work will take longer) then it may be possible to purchase cover for a longer indemnity period. Whatever you decide, make sure that the sum insured you are provided with meets with your needs.

Commercial Buildings and their Usage - there are many forms of commercial building and one of the key questions to help to determine a commercial building insurance quotation, is what the building is being used for. A well as insurance companies the usage of a building is of great interest to local planning authorities who are responsible for making sure that commercial buildings are only used for the purpose they are intended.  Commercial buildings and their usage can have a big impact on the local environment and consideration of all the environmental issues has for quite a while now been part of the planning process. However as a result of an EU directive that came in to force in 1988, certain environmental procedures now apply to many major developments, to insure that properties are only used for the correct usage, local authorities excerpt development control to ensure that any changes to local buildings are acceptable. Changing a building formally used as an office or shop in to a restaurant or bar for example may have a big impact of the local residents and other business and thus local authorities control all applications for new developments and changes of usage.

Most forms of development whether alterations to exiting structures or new builds will require the approval of the local planning authority before any building work can commence. Applications made are considered on their merits taking in to consideration various other local factors. Many commercial buildings are subject to a change of use throughout their lifespan. In England and Wales buildings are categorised under the Uses Classes Order. Under this system commercial buildings are allocated a category or even subcategory and planning permission is required if a change of use needs to take place. By this method local authorities can keep a tight control of commercial property in the area ns keep a check of undesirable change of usage.

No permission is required to change a buildings usage if it remains in the same class. The use of a building is generally decided buy what it was built for or what it was used for in 1948, the year after the planning act came in to force. It should be noted that an application for a change of usage only covers the property itself and the land. It does not cover any alterations to the structure of the building and requests for structural alterations will be subject to separate application. Interestingly in 1991 a law was introduced stating that if the use age of a building was changed but remained unchallenged for a period of 10 years, then the owner of the building could apply for a lawful use certificate.  In England and Wales Commercial Buildings are given a class order and this is detailed below. Often when you see a commercial building advertised for sale, its class rating will be displayed on the for sale board. This is to alert would be purchasers to the potential of the building.

• A1- Shops- Designed for the sale of goods other than hot food and services such as a barber shop or dry cleaners, visited by members of the public.

• A2- Financial & Professional Services- These properties provide services to the general public, it could be an accountants, a bank, an insurance broker or company, an IFA and also a bookmaker.

• A3- Buildings carrying this class are allowed to sell food and drink and include, pubs, wine bars, restaurants, takeaways etc.

• B1 Business Usage

• B2 Buildings for General Industrial usage

• B4- B7 Special Industrial Usage including certain unpopular trades such as refining and Abattoirs

• B 8 Storage and Distribution

• C1 Hostels & Hotel. This class of building provides accommodation but excludes premises where a significant amount of caring is involved.

• C2 This class relates to residential, institutions such as Hospitals, Care Homes, elderly retirement homes, boarding schools etc

• C3 Dwelling houses. private homes

• D1 Non residential institutions, this section includes, schools, colleges, museums, libraries, churches and other places of worship. etc

• D2 Leisure Facilities- Buildings classed under this section include Cinemas, night clubs, leisure centres etc.

Applications to construct commercial buildings or for a change of usage are made to the local planning authority. Local residents are always alerted to any planned changes. Usually a letter is issued to interested parties, sometimes newspapers advertisements are placed. and local authorities must keep a public register available for inspection. Local planners are very concerned nowadays about public sentiment to planning and often consultations go above and beyond that which is required by the law.