REALWorld Law

Commercial leases

Insurance

Who pays the cost of insuring the real estate which is the subject of a lease and what events causing damage will usually be covered by the policy?

Angola

Angola

Usually the lessor insures the property. Lessors may also opt to contract multiple-risk insurance, which also cover the risk of floods, storms, electrical damage, theft and robbery. Some multiple-risk insurance policies may also cover household effects, but it is not the lessor's responsibility to insure these items.

Australia

Australia

In relation to the cost of insuring the structure of a building the landlord under the lease will generally be responsible for taking out such insurance (but would normally pass on the cost to the tenant as part of the charge for outgoings). Policies are usually taken out for the replacement value of the building/premises and cover usual risks such as fire, storm, malicious damage or earthquake etc.

The tenant will normally be responsible for obtaining the necessary insurance policies for its business and property (such as public liability insurance) pursuant to its lease obligations and will often be required to reimburse the landlord’s costs of insuring as part of the building’s outgoings.

Belgium

Belgium

In general, lease contracts provide for all insurance policies relating to the building, its use and the liabilities of the parties to be taken out by the landlord, with the tenants paying a percentage of the insurance premiums as part of the service charge.

However, the tenant must insure all movable furnishings in the rented premises, including machinery, at his own expense against the risk of fire, explosion and water damage. 

Bosnia-Herzegovina

Bosnia-Herzegovina

The landlord pays the cost of insuring the building. A normal insurance policy will cover damage by fire, flood and the breaking of glass, as well as earthquake and theft.

Canada

Canada

The landlord will generally be responsible for taking out insurance in respect of any building or improvements on the property. Policies are usually taken out for the replacement value of the building/premises and cover usual risks such as fire, storm, malicious damage or earthquake. Landlords may also take out general liability policies to cover risks and liabilities associated with the occupation and use of the property by tenants and their employees, customers and invitees. The cost of the landlord’s insurance premiums is typically passed on to the tenants as part of the shared operating expenses.

The tenant will normally be responsible for obtaining the necessary insurance policies for its business and property including general liability insurance and property damage insurance with respect to the tenant’s property, and are often required to procure business interruption insurance and insurance covering injury to employees and workers.

China

China

The cost of insurance for the premises is usually met by the lessor and the insurance policy is taken out in his name. Many leases contain a clause requiring the lessee to take out an insurance policy to cover any damage caused to third parties or to the premises as a result of their activities on the premises.

In most commercial leases, there is a rent-free decoration period, which allows the lessee to perform interior decoration on the leased premises (subject to certain conditions) to make it suitable for the lessee's business needs. During this decoration period, the lessee must purchase fire and third party insurance and assume the liability for damage to the common facilities of the leased premises and the property of other lessees caused by the decoration.

Croatia

Croatia

The insurance is included in the service costs, which are paid by the tenants in proportion to the size of their unit. Insurance policies usually cover fire damage, damage from burst water pipes, glass breakage, storm damage and third party liability.

Czech Republic

Czech Republic

The cost of insurance is usually met by the lessor and the insurance policy is taken out in his name unless the parties agree otherwise. The insurance policy usually covers fire, explosion, flood, impact by plane, landslip and other natural disasters and insured risks.

Denmark

Denmark

The lessor usually pays for insuring the real estate (the building). Usually fire, storm, water damage, fungal damage and electrical faults are covered. The parties are free to agree otherwise including as to who pays the cost.

France

France

The owner of the property must take out an insurance policy to cover risks associated with premises occupied under a commercial lease. The tenant must also insure risks associated with its own activities on the premises.

The insurance policy usually covers inter alia the risk of fire, explosion and theft.

It is common to include an express clause in the lease agreement which provides for the tenant to reimburse the owner for the cost of insuring the premises as part of the service charges.

Germany

Germany

In most cases the landlord insures the leased property and the tenant reimburses him for the cost or, in the case of a multi-let building, an appropriate proportion of the cost via the service charge.

Building insurance usually covers, as a minimum, damage caused by fire, water supplies (eg overflowing of taps, burst pipes) and hail or storm. Both terrorism insurance and loss of rent insurance are also available in Germany. In the case of terrorism insurance, the costs can be passed on to the tenant (according to recent case law) if the tenant is – as is usually the case – obliged to bear the cost of building insurance and if there are indications for a risk of terrorist attacks on the insured building. However, a decision by the German Federal Court of Justice is still outstanding. The costs for loss of rent insurance are not normally passed on to the tenants.

Hong Kong, SAR

Hong Kong, SAR

The lessor will pass on the cost of insuring the building to the lessees. Each lessee normally pays a proportion of the cost, based on the size of the premises they occupy in relation to the total rentable space in the entire building or estate.

Hungary

Hungary

Quite often the full cost of insurance is passed on to the tenant(s) as part of the common service charge. In addition, tenants are normally required to take out adequate insurance on items belonging to them and brought into the property, as well as insurance against third party claims.

At a minimum, building insurance usually covers damage by fire, burst or leaking water pipes and storm. Insurance against terrorist damage and loss of rent are also available in Hungary.

Ireland

Ireland

The landlord will usually take out insurance to protect its capital investment. The premium is then recovered from the tenant. In a multi-let development, each tenant usually pays in proportion to the net internal area of its unit. Insurance normally covers full reinstatement costs, loss of rental income suffered by the landlord if insured damage occurs and the service charge. Other normal insured risks are fire, lightning, explosion, storm, tempest, bursting or overflowing of water tanks, apparatus and pipes, impact, aircraft, riot, civil commotion, labour disturbances and malicious injury.

Italy

Italy

Many leases contain a clause requiring the tenant to take out an insurance policy covering any damage caused to third parties or to the property as a result of their activities on the premises and the so-called “tenant liability policy” (rischio locativo) covering damages deriving from fire, water leakages, lighting and other events.

Usually the insurance policy for the building itself is taken out by the landlord.

Japan

Japan

Usually the lessor pays the cost of insuring the real estate, with coverage for fires and earthquakes typically included.

The lessee is often required to purchase supplemental home insurance to protect their personal property from fire damage and to protect against third party claims. 

Netherlands

Netherlands

The lessor will usually pass on the (proportional) costs of insuring the building to the lessee. No party is by law obliged to take out any specific insurance. The lessor will commonly take out buildings insurance which will correspond to what is determined as leased space and as such reach as far as the lessor´s maintenance obligations. Building insurance covers most damage from accidents, such as fire, but may be limited in the case of natural disasters.

Nigeria

Nigeria

The nature of the lease determines the parties’ respective obligations to insure the property. Usually the lessor has an obligation to insure the property against damages covered by unforeseen issues like fire, natural disasters and such other causes which may occur. The lessor’s insurance however, does not have to extend to damages to the lessee’s chattels and other fittings within the property and for which the lessee has an obligation to insure.

In a property comprising of multiple apartments or office spaces with several occupiers as lessees, the lessor may undertake this obligation to insure the property (except lessee’s personal chattels) and recover the costs of the insurance premium from all the lessees, proportionally.

In other cases, particularly long leases, the lessor may pass the obligation to insure the property and the lessee’s chattels to the lessee with a further obligation that the insurance policy be taken in the joint benefit and names of the lessor and the lessee.

The incidents that may be insured against are not limited to the following – fire, lightning, storm, earthquake, flood, riot and civil commotion, malicious damage and such other risks as the parties may consider prudent to insure.

The Tenancy Law of Lagos State, 2011 imposes on the lessor the obligation to insure the property except the agreement of the parties states otherwise.

Norway

Norway

It is commonly agreed that each of the parties will maintain insurance to cover their own interests. The landlord usually insures the building while the tenant will take out insurance to cover, for example, internal features, furniture and fittings, machinery, data, stock, loss of profit/business interruption and public liability. In addition, the tenant normally takes out insurance for doors and windows in the rental property. In the event of any damage, the tenant's insurance will be used to its full extent before the landlord's insurance is called upon. If the Lessee’s activities result in any increase in the insurance premium or regular charges for the property, or any stipulation from the Lessor’s insurance company involving capital expenditure, it is commonly agreed that the Lessee pays the cost.

Poland

Poland

The landlord generally insures the real estate. The tenant insures its own assets and insures itself against third party claims. However, a proportion of the premium payable by the landlord is usually included in the service charge paid by the tenant.

Portugal

Portugal

When property is split amongst various leases, the landlord is under an obligation to insure against loss by fire. Usually landlords opt to contract multiple-risk insurance, which also cover the risk of floods, storms, electrical damage, theft and robbery.

Some multiple-risk insurance policies also cover household effects, but it is not the landlord's responsibility to insure these items.

Romania

Romania

Usually the parties will maintain insurance to cover their interests. With regard to dwellings and residential units, recently enacted legislation obliges owners to take out insurance against natural disasters (ie earthquakes, flooding and landslides).

The landlord usually insures the building, whilst the tenant takes out its own insurance of eg internal building features, machinery, data, goods, loss of profit/business interruption and liability under a combined public liability policy.

Slovak Republic

Slovak Republic

The cost of insuring the real estate is normally paid by the landlord, but will be reflected in the rent. Usually, a real estate insurance policy covers damage responsibility, natural disasters including damage by water and risk of theft by burglary. However, the tenant is also usually obliged to maintain an insurance policy to cover damages in connection with the leased premises.

Spain

Spain

The parties need to agree on which insurance policies each of them should take out. It is very common for leases to provide for either the tenant or landlord to take out the following policies:

  1. An all-risk comprehensive insurance policy to cover, among other things, damage caused by theft, fire, smoke, water and explosion, as well as any other related risks to the contents of the property (including furniture, machinery and stock)
  2. A civil liability insurance policy (including employer's liability insurance) to cover any liability arising from business activities carried on the property
  3. A business interruption insurance policy, to cover any loss of profits caused by interruptions to business activities
  4. An all-risk comprehensive insurance policy to cover, among other things, the cost of rebuilding the property in the event of damage
  5. A civil liability insurance policy, to cover any liabilities the landlord may incur as the legal owner of the property
Sweden

Sweden

Typically the landlord is responsible for the building and tenants are responsible for any business activities in the premises.

In general, basic building insurance policies are designed to compensate landlords for damage to the property, loss of rent due to damage, and claims for damages to property or person. In addition to this basic coverage, additional insurance can be taken out.

Thailand

Thailand

This is a contractual arrangement between the parties to the contract. The normal events causing damage which are insured against are fire, flooding and other force majeure events. An all-risks insurance policy is generally used to mitigate against these risks.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

A landlord will typically pay for property insurance (where the property is occupied by more than one tenant) and a tenant will pay for its own contents insurance. A landlord operating a service charge will then recover the costs of the property insurance through the service charge. Under Abu Dhabi law there is automatic cesser of rent following damage or destruction of the property.

In the Abu Dhabi Global Market (ADGM) free zone, there are no regulations governing insurance obligations between landlords and tenants, which means the parties are free to contract as they wish. However, the ADGM Strata Title Regulations 2015 provide for the relevant strata development management association to insure buildings against damage from fire, storms, explosion, and equipment malfunction. For leasehold property located within the ADGM, it is important that the lease provides for the situation where the building is fully or partially destroyed or damaged, since there is no cesser of rent provided for at law.

United Arab Emirates - Dubai

United Arab Emirates - Dubai

This will usually be set out in the lease. It is common for the landlord to be responsible for buildings insurance and for the Tenant to be responsible for contents insurance. The landlord is likely to recover the cost of its insurance through the service charge.

UK - England and Wales UK - England and Wales

UK - England and Wales

The landlord will pass on the cost of insuring the building to the tenants. Each tenant normally pays a proportion of the cost, based on the size of the premises they occupy in relation to the total rentable space in the entire building or estate.

UK - Scotland

UK - Scotland

Generally, leases will require the landlord to insure the real estate for its full reinstatement value against a range of normal commercial risks, including fire, subsidence, lightning, thunderbolt, explosion, riot, civil commotion, storm and flood etc as well as loss of rent and service charges. The tenant is normally obliged to reimburse the landlord for the cost of insurance.

In this case the landlord is normally responsible for using the proceeds of an insurance claim to make good any damage.

Ukraine

Ukraine

Ukrainian law does not make property insurance for leased real estate obligatory unless state or municipal property is involved (except for state or municipal land plot insurance). Under Ukrainian law any state or municipally owned real estate transferred by way of lease must be insured by the lessee.

The cost of insuring private real estate can be charged either to the lessee or to the lessor, as they agree in the lease agreement.

The coverage provided by the insurance policy depends on the terms offered by the insurance company.

United States

United States

Except in the case of ‘ground leases’, it usually falls upon the landlord to insure the building against fire and other types of damage (subject to reimbursement of premiums through the shared operating expenses mechanism whereby all of the tenants in a building or development proportionately share the cost of maintaining and operating the common facilities). The tenant will be responsible for obtaining general liability insurance and property damage insurance with respect to the leased premises and tenant’s property. Tenants are often required to procure business interruption insurance and insurance covering injury to employees and workers (the latter may even be required by applicable law). Insurance requirements for coverage related to employees and workers may vary from jurisdiction to jurisdiction. With ‘ground leases’ and certain types of ‘net lease’, the tenant will be directly responsible for insuring the entire leased premises at its own expense. In ‘net leases’, in principle, the tenant is responsible for the cost of operating, insuring and paying taxes on its proportionate share of the real property. A ‘ground lease’ is a sub-specie of net lease where the tenant is given rights to develop a parcel of land leased to it.

The precise events which are covered by the insurance in question, and the extent of any exclusions, vary according to the insurance market in which the property is located, the type and use of the property, and the specific terms of the lease negotiated by the landlord and tenant.

Zimbabwe

Zimbabwe

Typically, the landlord would be responsible for the insurance of the structural property against fire and related perils, whilst the lessee would be responsible for insurance of the remainder against all claim including public liability insurances, for example, glass, signs and supports, fittings and fixtures affixed to the buildings or the contents. The parties would contract that the lessee would not do or fail to do anything which would cause an increase in the insurance premiums, or keep any hazardous goods on the leased premises.