Whether you are a Developer, Property Manager, or Property owner, it is important to ensure you have the most relevant insurance coverage to protect your investments from the many risks affecting Commercial Properties in Australia. The foundation of a Commercial Building Insurance policy is based on Building Insurance (option for Contents Insurance), Rental Income, and Public Liability; however, Commercial Property Insurance has evolved to include a wider scope of cover options, such as:

Machinery Breakdown

Complex coverage for loss or damage to large machinery, plant, and mechanical equipment, with options to include coverage for the resultant business interruption costs.

Rent Default

Protection against the loss of income resulting from tenant eviction, receivership, cease of rental payment, and tenants vacating the property.

Lease Incentives

Coverage for the costs required to attract new tenants to a property following a loss, including cash payment, reduction of rent, and additional fit-out expenses.

Claims Preparation Costs

Covers the cost of professional fees for the preparation, presentation and settlement negotiations for various types of large commercial property claims.

Development Costs

Allocates additional funds to the development of a property to attract new tenants if a property is damaged or destroyed.

Loss of Attraction – General Area

Coverage for loss of rental income or disruptions in normal business operations if caused by the damage to a property adjacent from the insured property.

Loss of Attraction – Anchor Tenants

Provides coverage option for the loss of rental income or disruptions in normal business operations should a key tenant vacate the premises (ex. A large supermarket in a small suburban shopping centre).

Inducements

This covers the expenditure necessary to induce tenants to lease or re-lease a building following reinstatement after a loss (including partial leases) from insured events.

Fixed Costs Not Recoverable from Tenants

This covers certain after-loss expenses such as cleaning, taxes, pest extermination, building maintenance, and electricity at the business premises.

Calculating Rental Income

When calculating the annual rental income for a property, one should factor in

1. Indemnity (recovery) Period, consider the following:

• Time to demolish and rebuild.
• Time for Council approvals.
• Time to re-tenant the building
• Minimum of 24 months recommended, your rental income will be covered for the period you select.

2. Outgoings, which includes parking and utilities.

3. Escalation costs over this period.

Insurer to Value

To ensure a claim is fully paid by the insurer, it is important that the property is valued at its full replacement cost.

We recommend having a professional insurance replacement cost valuation completed every 3 years to keep the value up to date.

Industrial Special Risk (ISR) Policy vs. Business Package Policy

An Industrial Special Risk policy provides cover for Buildings and Contents damage and Business Interruption cover by any cause not specifically excluded by the policy. This all-encompassing policy is designed for mid to high-value properties, typically from $5,000,000 upwards.

The Business Package offers protection for small to medium size properties, or small business owners against insured perils stated in the policy wording (fire, theft, vandalism, property damage, water damage, etc ). Typically not as comprehensive as the ISR policy, but can be more price competitive if the property is valued under $8,000,000.

Knowing your Duty to Disclose

It is the legal responsibility of the person applying for insurance to disclose relevant information to the insurer before an insurance quote is accepted and the contract is entered into.

The insurer is within their rights to remove themselves from a policy if they become aware of a risk they did not previously know of.

Please contact us for general advice on your duty of disclosure if clarification is needed.

At KBI we have leveraged our networks, strong relationships and our depth of knowledge of the Commercial Property space to customise insurance solutions for Property Owners, Developers and Property Managers. As experts in this area of insurance, we work closely with our clients to understand their unique needs. We approach insurance companies on your behalf to get a range of coverage and pricing options. We present these options through our Commercial Property insurance comparison, highlighting what the insurance covers you for, along with our recommendations for the most relevant insurance product for you. We then secure the insurance that you select and revisit the process annually in an attempt to keep your Commercial Property insurance costs down.