The most common pitfalls of commercial property ownership (and how to avoid them)

The tricky thing about becoming a commercial landlord is that you’re suddenly responsible for the roof over someone’s head. It might be the roof over someone’s home, or it could be the roof over someone’s business. Either way, livelihoods are at stake.

This blog shares some of the most common pitfalls we see when it comes to property ownership so you can look out for them and put things in place to prevent them.

Pitfall #1 – Not checking fixed electrics regularly

Did you know that fixed electrical wiring in a commercial property should be tested every 5 years or whenever there’s a change in occupancy? Aside from the obvious health and safety implications of keeping wiring and electrical installations in good condition, if you don’t regularly carry out an EICR (Electrical Installation Condition Report), it could invalidate your commercial property insurance.

Lots of insurers will insist on electrical testing every 5 years and most will generally follow up with a request for a copy of the certificate, but for some insurers, this may just be a condition, hidden in the depths of your policy.

How to avoid this pitfall:

Pop a recurring reminder in your calendar every 5 years (a few months before it’s due) to organise an Electrical Installation Condition Report for all your commercial properties.

Pitfall #2 – Underestimating your rebuild costs

Professional valuers Rebuild Cost Assessments estimate that 79% of commercial properties in the UK are underinsured. And one of the biggest contributing factors is that buildings often aren’t insured for their rebuild value.

The cost of building materials has increased by a whopping 38% since 2020 and labour costs are at all-time high, which means that rebuild costs are higher than ever.

The building sum insured is the maximum amount your insurer will pay out if your property needs to be rebuilt from scratch due to damage or total loss. This figure should reflect the total rebuild cost, not the market value of your home.

So, what’s included in a rebuild cost?

• Demolition and debris clearance
• Materials and labour
• Architects, surveyors, and legal fees
• Compliance with modern building regulations

How to avoid this pitfall:

Get a bespoke rebuild cost assessment from a chartered surveyor or request a desktop survey from a company like Rebuild Cost Assessments to make sure you have the correct ‘Sums Insured’ limit.

 Pitfall #3 – Not knowing the construction of your building

 It’s amazing how many commercial property owners don’t know the exact makeup and construction of the building(s) they own before they take out insurance. The construction of a building is important because it affects the likelihood of an incident as well as potential damage and liability.

Here are just some of the things your insurer might need to know:

• Does the building have a flat roof?
• If there’s a flat roof, what % of the total roof area is flat?
• What is the roof made of? (concrete is standard but felt and timber cladding are classed as non-standard)
• If the building is cladded, what type of cladding is it? Following the Grenfell Tower fire insurers want to know the full specification of any cladding on a building
• What type of floor construction is in the building? Are the floors concrete or timber?
• What % of the building is made from timber and is the building built around a timber frame?

How to avoid this pitfall:

Check your property records or search the land and property register. You can also request copies of the deeds to find out any historical information about the property as well as details of previous owners. If you’re really struggling, you can contact your local council’s planning department.

Pitfall #4 – Not knowing what’s going inside a building

If you let property for business or commercial use, it’s a good idea to have an understanding about what your tenant does so you can inform your insurers about what activities are going on inside the building.

Even though it doesn’t directly affect you, your tenant’s business is your business. Why? Because your insurer will want to know if the space is being used for offices, as a factory, for machinery or as a warehouse.

For example, if you let out a commercial property to a joiner, there are likely to be processes that involve dust (from woodworking machines). If you rent space to a motor mechanic, they might have spray booths. Each activity inside the building needs special consideration to make sure that your insurance protects you as the landlord and your tenants.

How to avoid this pitfall:

When you speak to potential tenants, ask about the nature of their business, the intended use of the property and in particular, what machinery or heat-based tools might be used.

Pitfall #5 – Separation for multiple occupancy

Having a larger building that’s shared by multiple occupants makes good business sense. But some insurers don’t like shared premises because there’s a much higher risk of theft (more people have access to doors, keys and alarm codes) and a much higher risk of fire spreading.

So if you do ‘let’ to lots of different businesses, you’ll probably need to consider some sort of fire separation (walls, doors, floors and partitions) between each occupant to prevent the spread of fire.

These pitfalls are all preventable

The good news is that all these pitfalls are preventable. Most just require you to be well-informed and to pass the right info onto your insurer. The challenge is, you don’t know what you don’t know, which is where we can help. We’ll spend time asking you ALL the right questions to make sure your commercial properties are properly protected.

Want a quote or a second opinion for your commercial property insurance?

Email Catherine or call 0118 916 5480 today.