A common question for businesses, landlords, and agents is: who should arrange and pay for building insurance on a commercial property? The answer depends on the terms of the commercial lease agreement, the type of property, and who holds an insurable interest in the building. This guide breaks down the essentials in simple, practical language so you can understand your responsibilities and avoid unexpected costs.
What Is Building Insurance for Commercial Property?
Building insurance for commercial property protects the physical fabric of the premises. This typically includes the structure, roof, walls, floors, windows, and certain fixtures and fittings that are considered part of the building.
Most policies cover:
- Fire, flood, storm and escape of water
- Vandalism and accidental damage
- Subsidence
- Full reinstatement or repair costs
Some commercial policies also include business interruption cover to protect rental income, along with property owners’ liability insurance in case someone is injured due to a defect in the building.
What Building Insurance Does Not Cover?
Building insurance normally excludes:
- Stock, personal belongings, IT equipment and furniture (these require contents insurance)
- Damage linked to a tenant’s activities (covered under liability insurance)
- Certain fixtures and fittings, depending on the lease
The purpose of building insurance is to protect the property, not the tenant’s business operations.
Who Should Arrange and Pay for Building Insurance on Commercial Property?
In most leasing arrangements:
- The landlord arranges the property buildings insurance
- The tenant pays for the insurance, either fully or partially, depending on the lease structure
The landlord arranges the policy because they own the building and therefore have the primary insurable interest. The tenant contributes because they occupy and benefit from the premises, which is part of the lease agreement. This also helps avoid inconsistent cover or gaps in protection.
1. Full Repairing and Insuring (FRI) Lease
Common for standalone commercial units, shops and industrial premises.
Who arranges the insurance?
The landlord arranges the building insurance.
Who pays?
The tenant pays for building insurance in full, usually through insurance rent or the service charge.
Why it works this way
The landlord controls the insurance level and provider, while the tenant pays because they occupy and use the property.
2. Internal Repairing and Insuring (IRI) Lease
Common in multi-let offices, shopping centres and industrial estates.
Who arranges the insurance?
The landlord arranges property buildings insurance for the whole development.
Who pays?
Each tenant contributes through the service charge or insurance rent.
How shares are calculated
- Unit size
- Percentage of occupied space
- A formula set out in the lease
This ensures fair contribution from all tenants.
3. Mixed-Use and Multi-Let Properties
In buildings with both residential and commercial units, one insurance policy must cover the full structure.
Do commercial tenants pay in mixed-use buildings?
Yes. Commercial tenants pay for building insurance on a mixed-use property, usually in proportion to their level of use and associated risk.
Why the landlord arranges the policy
A single building requires one insurance policy to avoid:
- Gaps in cover
- Conflicting claims
- Disputes about fixtures and fittings
The landlord is responsible for arranging the insurance and recovering costs from tenants.
4. Commercial Property Long Leases and Ground Leases
Some tenants have long leases of 99 years or more, giving them a strong insurable interest.
Who arranges the insurance?
The tenant often arranges the insurance for the building.
Tenant responsibilities
- Arranging compliant building insurance
- Providing proof of cover annually
- Insuring to full reinstatement value
In some cases, the freeholder still arranges insurance and charges the cost via the service charge or insurance rent.
Fixtures, Fittings and Contents: Who Insures What?
Understanding the difference between building insurance and contents insurance is essential.
| Item | Usually Insured By | Insurance Type |
| Structure (walls, roof) | Landlord | Building insurance |
| Built-in fixtures | Depends on lease and the degree of affixation | Building or contents |
| Removable items | Tenant | Contents insurance |
| Tenant improvements | Depends on lease | Building, contents or specialist cover |
We recommend you should ask for clarification before signing the lease.
Can a Tenant Refuse to Pay for Building Insurance?
No. If the lease states that the tenant must contribute to building insurance, they are legally required to pay.
Refusal may lead to:
- Interest charges
- Service charge penalties
- Debt recovery action
- In serious cases, forfeiture of the lease
Depending on the terms of the Lease tenants may request cost breakdowns but cannot withhold payment if the obligation is stated in the lease.
Business Interruption and Liability Insurance
These additional policies protect operational and legal risks.
Landlords usually insure:
- Loss of rent (business interruption)
- Property owners’ liability
- The building structure
Tenants usually insure:
- Contents and equipment
- Public liability
- Employers’ liability
- Tenant improvements
- Specialist industry cover
This helps ensure both the building and the business are adequately protected.
Summary: Who Usually Pays for Building Insurance?
| Lease Type | Who Arranges Insurance? | Who Pays? |
| FRI Lease | Landlord | Tenant pays in full |
| IRI Lease | Landlord | Tenant pays a share |
| Mixed-Use Property | Landlord | All tenants contribute |
| Multi-Let Building | Landlord | Tenants via service charge or insurance rent |
| Long Lease | Tenant | Tenant pays |
| Stand-Alone Unit | Landlord | Tenant pays |
How LDJ Solicitors Can Help
At LDJ Solicitors, we can carry out a thorough review of every commercial lease agreement in accordance with your instructions. This includes examining:
- Insurance rent
- Service charge contributions
- Insured risks
- Reinstatement obligations
- Fixtures and fittings responsibilities
- Tenant improvement requirements
Our commercial property team ensures you fully understand your obligations and potential financial exposure before you commit, helping you avoid unexpected costs and future disputes.