So, what does the loss of rent section under a commercial building insurance actually cover? It may seem fairly obvious but many landlords could be forgiven for thinking that it would cover them for periods of rental voids. Alas this is not the case, to make a valid claim under this section of a commercial property insurance policy; an insured event must have taken place.
The insured events are the listed perils covered by the Buildings section of the policy. To give an example, say there has been a serious fire at the property and the insurance company loss adjuster calls around and calculates it will take four months for the property to be reinstated for the tenant to use. During this time, the landlord may not receive any rent in respect of his building, there is a possibility that the tenant will quit the premises, or as is more likely, they will simply wait for the property to be reinstated and a combination of claims for loss of rent/ increased cost of working and business interruption made be made.
It is important for the owner of a commercial building to have loss of rent insured as some costs relating to the building are fixed, regardless of whether the building is tenanted or not, these overheads will continue and without insurance, the landlord will be dipping in to his own finances to meet them.
The insurance product provider will usually allow a percentage sum insured for loss of rent. With regard to this amount, it is fairly typical to be insured for 20% of the building sum insured, so a £150,000 rebuilding cost will allow you a sum insured of £30,000. This is the maximum amount payable and the insurers will of course not pay out any more than the Gross Rent received in respect of the building. So if your rental income is lower, the maximum you can hope to receive is the lower amount.
In most cases, the period of indemnity is limited to 12 months (this is the period you can expect to receive compensation for). It is possible in many cases to have this period extended up to 36 months if required, a higher sum insured may be requested if needed. The indemnity period starts from the date of the loss relating to the claim and not the commercial policy renewal dates.
Following a claim for an insured peril under the building section of the policy, the insurers will provide cover for Gross Rentals. This is defined as money paid to the landlord in respect of tenancies and services and other charges for the insured property. Should you as landlord provide the tenant with another commercial property or premises whilst reinstatement work is being carried out, then any monies received for these replacement premises will be taken in to consideration when the insurers settle the claim.
Most commercial building insurance policies have a similar range of perils that you will be covered against and any one of these can trigger a potential claim for loss of rent. A number of extensions are often included, some times free of charge, sometimes for a small additional premium. These can include: loss of rent caused by denial of access at another premises within the vicinity of the insured property & loss or damage caused by an insured peril happening at the premises of a managing agent resulting in the reduction of rent at the insured premises.
For full details of all covers you should always refer to your commercial property insurance policy or speak to your broker or agent.