Insurance & FRI Leases

Landlord Buildings Insurance Commercial Lease: How Does It Work?

Landlord buildings insurance commercial lease arrangements are one of the most misunderstood costs in a business tenancy. This senior solicitor's guide explains who arranges the cover, who pays for it, what happens after serious damage, and how to spot the traps before you sign.

Reviewed by our commercial lease solicitors Last reviewed: September 2026 12 minute read
Landlord buildings insurance commercial lease explained for a UK commercial office building

Key Takeaways

  • In many commercial leases, the landlord arranges buildings insurance and recovers the cost from the tenant.
  • The tenant's contribution is often described as insurance rent.
  • In a multi-let building, the insurance premium is normally apportioned between the occupiers.
  • Buildings insurance is different from insurance for the tenant's stock, equipment and business activities.
  • The lease should identify the risks the landlord is required to insure against.
  • The landlord may also insure against loss of rent following serious insured damage.
  • Tenants should check whether the landlord can recover valuation costs, policy excesses and other insurance-related expenses.
  • A well-drafted lease should explain what happens if insured damage makes the premises unusable.
  • Rent may be suspended following qualifying damage, subject to the wording of the lease.
  • The treatment of uninsured and uninsurable risks should be checked before signing.
  • Tenants should avoid anything that could invalidate the landlord's policy or increase the premium.
  • Insurance provisions should be reviewed alongside repairing obligations, service charges and reinstatement provisions.

Most people come to this topic after a slightly unsettling conversation. You have found the unit you want, the agent has sent the draft lease, and buried somewhere in the middle is a clause requiring you to pay the landlord's buildings insurance. It feels unfair on a quick read, and it is easy to assume you have been handed something unusual. In truth, it is completely standard, and understanding why it exists will save you money and stress.

I have reviewed hundreds of commercial leases over the years, and the insurance clauses are consistently the ones tenants read fastest and worry about least. That is a mistake. Buildings insurance sits alongside your repairing obligations and service charge, and the three of them together often decide whether a bad year becomes an unaffordable one. Below I have set out how landlord buildings insurance typically works in England and Wales, where the genuine risks lie, and the questions worth asking before you put pen to paper.

If you are new to business tenancies, it may help to start with our guide to how a commercial lease works and then return here, because the insurance provisions only make sense once you understand the broader structure.

How does landlord buildings insurance work in a commercial lease?

Landlord buildings insurance in a commercial lease commonly works by the landlord arranging insurance for the building and recovering the appropriate cost from the tenant as insurance rent. The policy protects the physical property against specified risks, while the tenant normally remains responsible for insuring its own stock, equipment, contents and business-related risks.

This structure is common because the landlord owns the investment and wants control over whether the building is properly insured.

The RICS Code for Leasing Business Premises reflects the market norm that the landlord will typically secure and initially pay for the insurance cover and then recharge the tenant. In multi-let properties, the landlord normally insures the whole building and tenants contribute their appropriate proportions.

However, the lease is the crucial document. Do not assume every commercial property follows exactly the same arrangement, because they do not.

In practice

In one recent matter, a tenant had budgeted for rent and service charge but had not factored in the insurance rent at all. The insurance contribution added roughly eight per cent to the annual cost of occupation. It was recoverable under the lease, it was perfectly lawful, and it caught them by surprise.

Who normally arranges buildings insurance for commercial premises?

The landlord normally arranges buildings insurance, particularly where a tenant occupies only part of a larger property. For a whole-building lease, the landlord also commonly retains control of the insurance. In some circumstances, however, the lease may make the tenant responsible for arranging appropriate buildings insurance itself.

Where premises form only part of a building, it simply is not practical for each tenant to arrange cover for the structure. The landlord insures the whole building instead, and that approach keeps the position clean.

Even where an entire building is let, the landlord will usually still want to control the insurance. This helps avoid:

  • Gaps in insurance
  • Inconsistent cover between tenants
  • Insufficient rebuilding cover
  • Multiple policies covering the same structure
  • Problems controlling a major insurance claim

Where tenant-arranged cover does occur, it is usually in a whole-building lease granted to a strong covenant, and even then it is often balanced with an obligation to insure for full reinstatement value and to name the landlord as an interested party. For a deeper look at how the repair and insurance obligations interact, our overview of full repairing and insuring obligations is a useful companion to this article.

Who pays for buildings insurance in a commercial lease?

Although the landlord commonly arranges the policy, the commercial tenant will often bear some or all of the cost. The lease may require the tenant to reimburse the landlord through a separate insurance rent or another contractual payment. In multi-let buildings, the premium is commonly apportioned between the different tenants.

Take a simple example:

Item Amount
Annual buildings insurance premium £12,000
Tenant's agreed share of the building 25%
Annual insurance rent payable £3,000

But the method of apportionment should always be checked. It might depend on:

  • Floor area
  • Rateable value
  • A stated percentage
  • The landlord's reasonable assessment
  • Another formula specified in the lease

RICS guidance recommends that the parties establish at Heads of Terms stage who will arrange the insurance and who will bear its cost. That single conversation often prevents a dispute later. Our team regularly advises at that stage through our Heads of Terms service, where insurance costs and apportionment are pinned down early.

What is insurance rent in a commercial lease?

Insurance rent is a contractual payment through which a landlord recovers insurance costs from the tenant. It is normally payable in addition to the principal rent and may cover the buildings insurance premium together with other insurance-related costs permitted by the lease. The exact definition should therefore be checked carefully before signing.

A commercial lease may define several different payments as "rent", for example:

  1. 1Principal or base rent
  2. 2Insurance rent
  3. 3Service charge
  4. 4Interest
  5. 5Other sums expressly reserved as rent

This distinction matters because insurance rent is an additional occupation cost. Treating it as rent also has legal consequences, since a landlord may be able to forfeit the lease or pursue remedies for unpaid insurance rent in the same way as unpaid base rent.

A tenant comparing two properties should therefore compare the total occupancy cost, not simply the advertised annual rent. Our guide to base rent in a commercial lease explains how the principal rent fits together with these separate liabilities.

What does commercial buildings insurance normally cover?

Commercial buildings insurance commonly protects the physical building against specified insured risks and provides cover based on the reinstatement value of the property. The exact insured risks vary between policies and leases, so tenants should check the insurance provisions rather than assuming every type of damage will be covered.

RICS identifies risks commonly addressed in commercial property policies such as fire, lightning, explosion, storm, flood, water leakage, malicious damage, subsidence and terrorism, subject to the terms and exclusions of the relevant policy. The RICS real estate standards and professional guidance set out the wider property management framework if you want to understand how insurance fits alongside valuation and management duties.

Cover may extend to:

Area Potential Buildings Cover
Roof Usually part of insured building
External walls Usually
Structural elements Usually
Landlord's fixtures Depending on policy
Building services Depending on policy
Reinstatement costs Commonly
Property owner's liability Commonly arranged
Loss of rent Commonly arranged separately or alongside property cover

The actual policy always needs to be checked. For authoritative market guidance on how insurance dovetails with property management, the RICS professional statement on service charges in commercial property is a reliable reference.

What does landlord buildings insurance not normally cover?

A landlord's buildings policy does not normally provide comprehensive insurance for the tenant's business. Tenants generally need their own insurance for contents, stock, equipment and liabilities arising from their operations. Depending on the circumstances, tenant improvements and fit-out items may also require specific insurance arrangements.

A tenant may need separate cover for:

  • Stock
  • Computers and IT equipment
  • Machinery
  • Furniture
  • Tools and specialist equipment
  • Business interruption
  • Public liability
  • Employers' liability
  • Tenant's fixtures
  • Fit-out works

RICS specifically notes that the tenant will usually be responsible for insuring its own contents. Put simply, buildings insurance protects the building. It should not be mistaken for complete insurance of the tenant's business.

What is loss of rent insurance?

Loss of rent insurance protects the landlord against rental income lost when insured damage prevents the premises from being used and the lease allows the tenant's rent to be suspended. Commercial property insurance arrangements commonly provide loss-of-rent cover for a specified indemnity period while reinstatement takes place.

Imagine a serious insured fire makes a warehouse unusable for 12 months. If the lease provides for rent suspension, the tenant may not have to continue paying the normal rent during the relevant period. That creates a loss of income for the landlord, and loss-of-rent insurance is designed to protect against that risk, subject to the policy.

RICS identifies loss of rent and service charge with an agreed indemnity period as an important aspect of commercial property insurance arrangements. The length of that indemnity period is one of the figures worth checking carefully, because rebuilding frequently takes longer than anyone expects.

Does rent stop if insured damage makes the property unusable?

A properly drafted commercial lease will commonly provide for rent suspension where insured damage makes the premises unusable or inaccessible, subject to the lease conditions. The length and scope of the suspension should be checked carefully, including what happens if reinstatement takes longer than the insured loss-of-rent period.

The RICS Code recommends rent suspension where premises, or relevant landlord areas or services, are damaged by an insured risk. It also recommends appropriate treatment of uninsured risks where the damage was not caused by the tenant. This provision is sometimes called a rent suspension clause or rent cesser clause.

In my experience, tenants focus on the headline rent and overlook this clause entirely. Yet after a serious fire, the difference between a rent cesser that covers principal rent only and one that also covers service charge and insurance rent can be many thousands of pounds over a prolonged rebuild.

What happens after serious insured damage?

Following serious insured damage, the landlord will normally make the insurance claim and apply available insurance proceeds towards reinstating the property in accordance with the lease. The lease should address the landlord's reinstatement obligations, rent suspension and what happens if rebuilding cannot be completed within the relevant period.

The process may look like this:

Damage occurs Landlord notified Insurer notified Claim assessed Works approved Building repaired

The lease should also deal with difficult situations where reinstatement becomes impossible or takes much longer than expected. RICS recommends that if significant reinstatement is not completed during the contractual rent-suspension period, appropriate termination rights should be available to the tenant.

What are uninsured or uninsurable risks?

An uninsured risk is broadly a risk for which the property does not have effective insurance cover, although leases may define the concept differently. Modern leases should deal expressly with what happens if serious uninsured damage occurs because otherwise the parties can face uncertainty over rent, rebuilding obligations and termination rights.

Insurance markets change. A particular risk might:

  • Become unavailable
  • Become commercially unreasonable to insure
  • Be excluded by insurers
  • Be subject to restrictions or very high excesses

The RICS Code recommends that leases address significant uninsured damage and, where appropriate, allow termination unless the landlord elects to rebuild at its own cost. Our guide to full repairing liability explains how these provisions sit alongside a tenant's repair obligations, and whether a full repairing and insuring lease should be treated as a red flag.

Can the tenant ask to see the landlord's insurance policy?

Commercial leases should provide appropriate transparency regarding the insurance arrangements. RICS recommends that where the landlord insures, it should use reputable insurers and provide details of the insurance to the tenant on reasonable request. Tenants should understand what they are paying for and what risks and exclusions affect the premises.

A tenant may reasonably want information concerning:

  • Insurer
  • Policy period
  • Insured risks
  • Sum insured
  • Reinstatement value
  • Premium
  • Excess
  • Loss-of-rent period
  • Important exclusions
  • Its proportion of the premium

The RICS Code also recommends that landlords pass discounted premiums on to tenants and disclose whether they benefit from insurance commissions. That is worth remembering if the insurance rent seems disproportionately high relative to market rates.

What is a reinstatement cost assessment?

A reinstatement cost assessment estimates the cost of rebuilding the insured property following major destruction. It is not necessarily the same as the property's market value. Commercial landlords may commission periodic assessments so that the sum insured remains appropriate, with recoverability of valuation costs depending on the lease.

For example, a property with a market value of £1.5 million does not automatically have a rebuilding cost of £1.5 million. Reinstatement can involve:

  • Demolition
  • Site clearance
  • Construction
  • Professional fees
  • Building regulations compliance
  • Specialist materials
  • Inflation
  • Other rebuilding expenses

RICS says commercial leases commonly require insurance at full reinstatement value, regularly assessed with professional input. If the building is under-insured, a claim may be reduced proportionately, which is a scenario no tenant wants to discover after a fire.

What insurance obligations does the tenant have?

Even where the landlord arranges buildings insurance, the tenant will usually have important insurance-related covenants. These commonly require the tenant not to invalidate the policy, to provide relevant information, report potential claims promptly and notify the landlord of changes to the property, occupation or business activities that could affect the insurance.

Typical tenant obligations include:

  1. 1Do not invalidate the policy
  2. 2Notify the landlord of an insured event
  3. 3Provide information reasonably requested for insurance
  4. 4Inform the landlord about material changes of use
  5. 5Comply with insurer requirements notified to the tenant
  6. 6Pay the insurance rent when due
  7. 7Pay any properly recoverable excess where the lease makes the tenant responsible
  8. 8Maintain separate business insurance where necessary

RICS identifies many of these as standard considerations in commercial property management. Breaching them can have serious consequences, because an insurer may decline a claim if policy conditions have not been met.

Who pays the insurance excess after a claim?

Responsibility for an insurance excess depends on the commercial lease. The document should be checked to establish whether the landlord absorbs the excess, recovers it through the service charge or insurance provisions, or can require the tenant to pay it in specified circumstances, particularly where the tenant caused or contributed to the damage.

This can be important where policies contain substantial excesses. Do not assume that because the building is "insured", every pound of a repair bill will automatically be paid by the insurer.

What happens if the tenant causes the damage?

Where damage results from the tenant's act or default, the lease and insurance policy need to be considered together. The tenant may lose the benefit of particular rent-suspension protections or face liability for losses not covered by insurance. The precise outcome depends on the contractual wording and circumstances.

This is why tenants should understand policy conditions, lease covenants, permitted use, alterations provisions, fire safety requirements and notification requirements. A tenant should notify the landlord promptly when an event may give rise to an insurance claim.

How does buildings insurance work in an FRI lease?

In a Full Repairing and Insuring lease, the tenant generally bears the financial burden of both repairing and insuring the property, but this does not necessarily mean the tenant arranges the buildings policy. Commonly, the landlord arranges the insurance and recovers the premium from the tenant as insurance rent.

This distinction is important, because "insuring" does not always mean "the tenant buys the policy". More often it means the landlord arranges the policy and the tenant reimburses the landlord.

For a whole-building lease to a financially strong tenant, alternative arrangements can sometimes be agreed. RICS confirms that tenant-arranged insurance occasionally occurs in such circumstances. If you want to understand where your arrangement sits, our guide to full repairing and insuring obligations sets out the wider framework.

What should a tenant check before signing the lease?

Before signing a commercial lease, a tenant should understand who arranges buildings insurance, which costs it must reimburse, the insured risks, policy excess, rent-suspension provisions and what happens following uninsured damage. These points should be considered alongside repair obligations and the overall cost of occupying the property.

Commercial lease insurance checklist

1Who arranges buildings insurance?
2Who pays the premium?
3How is my contribution calculated?
4What does "insurance rent" include?
5Which risks must be insured?
6Is terrorism included where appropriate?
7Is loss of rent insured?
8For how many years is loss of rent covered?
9What is the policy excess?
10Who pays that excess?
11Can I obtain insurance information?
12How often is the rebuilding value assessed?
13Who pays valuation costs?
14Are commissions or discounts disclosed?
15What happens if the building is damaged?
16When does rent suspension begin?
17Which payments are suspended?
18What happens if reinstatement takes years?
19What happens following an uninsured risk?
20Can either party terminate if rebuilding does not happen?
21Are tenant improvements adequately insured?
22What separate business insurance do I need?

If you are taking on your first premises, our first commercial lease checklist expands these points into a full pre-signature review, and a commercial lease review will confirm how the insurance clauses actually operate in your specific document.

Frequently asked questions

Does the landlord have to insure a commercial building?

Does the tenant pay the landlord's buildings insurance?

Is buildings insurance included in commercial rent?

Does landlord insurance cover my business equipment?

Does rent stop after a fire?

Can I see the landlord's insurance details?

Who makes the insurance claim?

Does an FRI lease mean the tenant arranges insurance?

So, how does landlord buildings insurance work in a commercial lease?

In many cases the structure is straightforward:

The landlord arranges the policy.
The tenant pays the insurance rent.
The insurer protects the building against specified risks.
The landlord deals with major buildings claims and reinstatement.
The tenant separately insures its business, contents and other relevant risks.

But the detail matters. A tenant should not simply ask whether the building is insured. The better questions are: what is insured, what am I paying for, what is excluded, who pays the excess, does my rent stop if I cannot use the property, what happens if the building cannot be rebuilt, and what happens if the risk is uninsured?

These issues can have significant financial consequences after a fire, flood or other major event. Understanding the insurance clause before signing is therefore an important part of commercial lease due diligence. Our lease insurance obligations team deals with these clauses every week, for both landlords and tenants.

Speak to Commercial Lease Specialists

Our commercial lease solicitors advise landlords and tenants on lease insurance clauses, insurance rent, FRI leases, rent suspension, insured and uninsured risks, reinstatement provisions, service charges (see our guide to commercial lease service charges), repairing obligations and Heads of Terms.

Get a free consultation Commercial lease advice for tenants

Call 01582 415836 or email info@commercialleasespecialists.co.uk

Written and reviewed by our commercial lease solicitors

This guide has been prepared and reviewed by the senior commercial lease team at Commercial Lease Specialists, part of MB Legal Solicitors Ltd. We advise landlords, tenants, investors and developers on commercial property lease law across England and Wales.

Published: September 2026  |  Last reviewed: September 2026

This article is general information and not legal advice. It reflects the position in England and Wales at the date of publication. Please see our disclaimer.

Related commercial lease guides

Keep reading on the areas that sit alongside buildings insurance in a commercial lease.

Full Repairing and Insuring Obligations

Who pays for repairs, insurance and maintenance under an FRI lease.

Full Repairing Liability: A Red Flag?

When full repairing liability is normal and when it becomes risky.

Base Rent in a Commercial Lease

How base rent works and how it differs from insurance rent and service charge.

How Much Does a Commercial Lease Cost UK?

The full commercial lease cost picture, including insurance rent.

First Commercial Lease Checklist

30 things to check before you sign, including insurance.

Reviewing a Lease Before Signing

How a solicitor reviews the insurance provisions in your lease.

What Is a Commercial Lease?

How a commercial lease works and what it covers.