COMMERCIAL INSURANCE INSURING A COMMERCIAL PROPERTY

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1 COMMERCIAL INSURANCE INSURING A COMMERCIAL PROPERTY

2 INTRODUCTION There are many reasons why trying to obtain insurance for a commercial or industrial building could prove difficult. One or more of the following questions may be asked when you are looking for insurance for your business premises: What is the property used for? Where is the property located? What materials have been used to construct the property? Does the property have a history of flooding? Does the property have a history of subsidence? Is the property to be unoccupied for any length of time? Is the property undergoing renovation/refurbishment? Have any claims been previously made? Have you or your Company ever been refused or had difficulty obtaining insurance (including previous criminal convictions)? NB The following white paper also relates to multiple properties, including blocks of flats or even portfolios of commercial and residential buildings.

3 WHAT YOU NEED TO DO The first thing you need to know is the importance of informing your insurance company of any unusual or specific issues relating to either you or your Company, as the policyholder, or the property itself. The onus is upon you to divulge any such issues and the following guidance notes give you an idea of the sort of things you may need to consider when looking for commercial property insurance. Please note this is not an exhaustive list, but shows the more common reasons for making a building hard to insure. WHAT IS THE PROPERTY USED FOR? The actual use that a commercial, business or industrial property is put to is a decisive factor when it comes to insurance. Whilst the vast majority of uses are acceptable there are still certain circumstances where you will find it more difficult to obtain the insurance you require. Examples of this would be in the specialist manufacturing sector where highly inflammable materials might be used (such as a fireworks factory or plastics industry) right through to a grand Listed Country House used as a wedding venue or Hotel. Equally you may own a block of flats where the majority of tenants are DSS recipients, students or asylum seekers. All of the above can prove hard to insure. WHERE IS THE PROPERTY LOCATED? The location of the premises is an important element too. The UK is basically split into areas by insurers according to the risk they represent. This could be from the point of view of vandalism, theft, flood or other such factors. Equally, such factors as to how accessible the premises are to the emergency services need to be considered. A property that is two miles down an unmade road in the middle of nowhere could be gutted by fire by the time the fire brigade arrives whereas a city centre premises would stand more of a chance of being saved. WHAT MATERIALS HAVE BEEN USED TO CONSTRUCT THE PROPERTY? When considering whether to take on a risk an insurer will need to know what the building is constructed from. The vast majority of buildings are made of brick, blockwork or metal walls with a tiled, slated or metal roof. When buildings do not conform to this specification there can be issues when it comes to insurance. Typical examples are the presence of composite panels, (often used in the coldroom/freezer industry), timber framed or timber clad buildings or older buildings (often Listed buildings) where the materials used in the construction process could include such things as lath and plaster or even wattle and daub.

4 DOES THE PROPERTY HAVE A HISTORY OF FLOODING? Certain parts of the UK have been designated as flood risk areas by the Environment Agency. It can be problematic when it comes to the property owner finding the right type of insurance with flood cover. It should never be assumed that all properties in a given flood risk area are as vulnerable as each other, since one could be at the bottom of a hill and the other at the top. Equally, there are many business premises, such as Public Houses, that are located near to a river and have never flooded. What about all the Hotels and Guest houses by the sea around the UK? It certainly does not follow that, just because they may be in designated flood areas they are bound to flood. DOES THE PROPERTY HAVE A HISTORY OF SUBSIDENCE? You may already own, or are looking to buy, a property that has already suffered from subsidence and, as a result, find it hard to insure. You should be aware that you cannot purchase insurance just to cover subsidence alone. Subsidence cover forms part of the general buildings insurance policy. If your property has been affected by subsidence in the past there are certain things you will need to do. These include presenting any paperwork you have access to which should ideally show the date, cause, method used to correct the subsidence, cost of the works and any guarantee issued by the builder. If you wish to go a stage further a full Structural Engineer s report would provide far more searching evidence of the current stability of the property and, although expensive to arrange, could make the difference between obtaining subsidence cover or not. Certain parts of the UK are more prone to subsidence issues than others. Therefore, even though your particular property may have shown no sign of subsidence, you may find your premises are designated as being in a subsidence area. This could make it problematic when it comes to the property owner finding the right type of insurance with subsidence cover.

5 IS THE PROPERTY TO BE UNOCCUPIED FOR ANY LENGTH OF TIME? If you have a commercial or industrial building that is to become unoccupied for any length of time you must inform your insurance company. Similarly, if you are looking to purchase such a property, and have no immediate plans to use it (maybe because you wish to renovate of refurbish it) you need to make your insurance company aware of this. You will be surprised at just how hard it can be to obtain the sort of insurance you really want, especially if there is a mortgage involved and comprehensive insurance cover is required. HAVE ANY CLAIMS BEEN PREVIOUSLY MADE? All Insurers will need to take into account any insurance claims (normally within the previous five years) that have been made on the property. This helps them to decide if they wish to offer insurance and, if they do, charge the appropriate premium. If you are buying a property it is always worth asking the vendor/seller whether they have made any claims in the previous five years, as this is often requested by Insurers. Equally, if you have made claims on other properties this should also be disclosed. Most insurers will only offer limited flea cover (fire, lightning, explosion and aircraft) which would put you in breach of your mortgage conditions or leave you out of pocket in the event of an incident involving something else. If you are in this position, once again you will need to talk to a specialist Insurer provider.

6 YOU OR YOUR COMPANY If you, a Business Partner or any of your Company directors, have an unspent criminal conviction then you will need to inform your insurers. Even a minor offence involving just a fine or community service needs to be declared. All convictions have a statutory timescale before they become spent and no longer declarable. For details of when a conviction becomes spent, and therefore no longer needs to be declared, please visit the link shown on the last page. Bankruptcy, County Court Judgements or Individual Voluntary Arrangements can also be a factor when looking for insurance. If you, or your Company, have such a history it is always worth mentioning it to insurers since many will look upon this as an important factor when determining whether to offer you insurance or not. CONSEQUENCES OF NOT HAVING THE CORRECT INSURANCE any lender/mortgage provider would need to know you have not arranged adequate insurance and this may mean they might have to withdraw from funding a property. If you own a commercial or industrial property, block of flats or any other premises run commercially you are responsible as owner of that property to members of the public, including any tenants. Imagine a passer by being hit by a falling tile from the roof of your premises and suffering severe or even fatal wounds. The claim for this could run into hundreds of thousands, if not millions, of pounds and without adequate insurance could prove to be a step too far for you and them. It is therefore essential that you disclose to your insurance company the sort of information set out in this White Paper, even though they might not ask you outright about it. Please note that this is not a definitive list but hopefully it gives you an insight into what is required in order to find the right insurance for your specific needs. Failure to disclose any relevant information to your insurers can lead to them refusing to pay a claim of any description. Not only would this cause financial hardship in most cases but it may well constitute another problem for you. They would class it as non-disclosure of information and, going forward, you would be duty bound to inform any other insurance company of this. Equally,

7 OPTIONS OPEN TO YOU There are no statutory requirements that govern insurance for owning a commercial property, except that if you employ anyone you must have Employer s Liability cover. Therefore you do have the option of not carrying insurance at all, or carrying less comprehensive insurance, without breaking the law. But that s where it stops. However, this attitude could very easily lead to financial difficulties for you as well as possibly breaching any mortgage conditions on the property. CONCLUSION Insuring your property on the correct basis is vital to ensure that your interests are protected. This is a major investment on your part and it is imperative that you have the correct level of cover in place to ensure you, or your Company, are not left out of pocket in the event of a claim. If you are unable to source the required level of insurance for your premises please contact us for further details, no matter to what degree your property is unusual, unique or hard to insure.

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