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Commercial Building Insurance Types

What are the various types of commercial property ?

When insuring a commercial building, the insurance company will want to know the trade or occupation of the tenant that will be occupying the premises. The exact usage of the building can effect the insurance premium. Insurers take in to consideration, the trade processes that will be employed at the property as well as the goods that may be stored in the building and a premium is calculated accordingly. Generally speaking, the more hazardous the occupation of the tenant, the more the insurance premium will be.

The Town and Country Planning (Use Classes) Order 1987 replaced the Town and Country Planning (Use Classes) Order 1972 and the act deems that any change of use to a building will be classed as development of the property and thus planning permission will be required ( unless covered by the The General Permitted Development (Amendment) Order 2005. Whilst this does not effect a commercial property insurance quotation per se, any change of use of a building can ultimately effect the premium a landlord is required to pay .

The uses classes order of 1987 applies a code to most building types, depending on what it is intended to be used for. When a landlord applies to an insurance company for a commercial building insurance quotation, it is not usual for the building class to be requested. Within each order group are many different types of commercial operation and the order class is simply not wide enough for an insurance company to provide an accurate rating based on the class of use alone. For example, the category “A1” includes a wide range of mostly retail outlets but depending on their exact trade, the building insurance could be higher or lower. Insurance companies require to know the exact trade and usage before an accurate premium can be quoted. Most commercial landlords are fully aware of the classes of order and the permitted trades that a tenant can use the property for. The landlord informs the insurance company of the trade of the occupier and a premium is calculated accordingly. The onus is on the landlord to keep the insurance company updated as to the use of the building and most modern commercial building policy wordings contain a number of clauses that the landlord needs to understand.

The insurance company would not expect an insured building to be used for a commercial purpose it was not designed for, but if a property does contravene is use classification , that does not necessarily mean a claim will not be paid. The insurance company will look at the declared usage and make a decision based on that information. Landlords can also have a certain degree of protection by obtaining a commercial property insurance policy that contains a “non invalidation” clause, this clause will keep the buildings section of the policy valid in the event that any act or omission occurs which is beyond the landlords control and which increases the risk. For this clause to operate, the landlord will need to inform the insurance company immediately they become aware of the alteration or omission. This valuable addition will help protect the landlord in the event that the tenant decides to use the building for something not originally declared to the landlord. The main commercial building use orders are as follows. As mentioned, these are not used for insurance rating purposes:-

  • A1-Shops, retail warehouses, sandwich bars, hairdressers, travel agents, ticket brokers, post offices ( including sub post offices) dry cleaners, showrooms, hire shops (domestic), internet cafes.
  • A2- Financial & professional services, banks, building societies, insurance brokers, estate agents, betting shop premises.
  • A3- Food & drink retails, restaurants, public houses, snack bars & “Unique Types” such as launderettes, taxi or vehicle hire firms, amusement centres & petrol stations.
  • B1-Offices, not within A2 above, research and development, studios, laboratories, high technology buildings ,light Industry units
  • B2 -General Industry
  • B8- Wholesale warehouses, distribution centres.
  • C1 Hotels, boarding houses and guest houses
  • C2-Residential schools and colleges
  • C3-Dwellings, small businesses at home. (Does not include households consisting of more than six residents not in a family or households where care is being provided for the residents).
  • D1 Places of Worship
  • D2 Cinemas, music and concert halls, sports halls swimming baths, skating rinks, gymnasiums, other indoor and outdoor sports venues and leisure uses, bingo halls, theatres, night-clubs, casinos.

The above list is not full and complete and if you are intending changing use of a building , you will need to seek professional assistance to understand the correct procedure to follow. Always keep your insurance company fully informed as to any commercial operations being carried out within a premises, it can effect the scope of your cover.