If you are taking, granting or renewing a commercial lease in the UK, one of the first practical questions is who actually pays for the building insurance. The short answer is that the landlord almost always arranges the policy and the tenant pays for it through the rent. The detail, however, sits in the lease — and that is where misunderstandings tend to surface.
This guide explains how insurance responsibilities are typically split between landlord and tenant on UK commercial property, why that split exists, and what to look for in the lease before you sign. You can also read our broader guide to commercial building insurance or visit our commercial property insurance specialism page.
Quick answer
On the vast majority of UK commercial properties, the landlord arranges the buildings insurance and the tenant pays the premium as part of the rent. The mechanism is set out in the lease and the payment is usually called "insurance rent" or simply recharged through the service charge.
This applies whether the property is a single-let shop, an office building, an industrial unit or a multi-let estate. The tenant separately insures their own contents, stock, fit-out, business interruption and liabilities — the landlord's buildings policy is designed to protect the structure, not the tenant's business.
How UK commercial leases allocate insurance
Most modern UK commercial leases follow a similar pattern. They impose an obligation on the landlord to insure the building against a defined list of "insured risks", and a matching obligation on the tenant to reimburse the cost. The terminology varies but the structure is broadly consistent.
| Lease type | Buildings insurance arranged by | Premium paid by |
|---|---|---|
| Full repairing and insuring (FRI) — single-let | Landlord | Tenant (100% of premium) |
| FRI — multi-let (with service charge) | Landlord | Tenants (apportioned via service charge) |
| Internal repairing only (IRI) | Landlord | Tenant (often via a service charge top-up) |
| Short lease / licence to occupy | Landlord | Usually included within the rent |
| Owner-occupied (no lease) | Owner | Owner |
The lease should also describe the insured risks (fire, lightning, explosion, storm, flood, escape of water, impact, malicious damage, subsidence, and so on), the basis of cover (almost always reinstatement of the building to its original condition) and any optional covers such as loss of rent and terrorism.
Why landlords arrange the cover
There are several practical and legal reasons the landlord — rather than the tenant — almost always holds the buildings policy:
- The landlord owns the asset. The freeholder has the insurable interest in the structure and the strongest commercial incentive to make sure it is properly insured and reinstated after a loss.
- Lender requirements. Commercial mortgages almost always require the borrower (the landlord) to insure the building and to note the lender's interest on the policy.
- Consistency across multi-let buildings. A single landlord policy avoids the gaps and overlaps that would arise if each tenant insured "their" part of the structure separately.
- Control of reinstatement. If the building is damaged, the landlord controls the rebuild, the choice of contractors and the way the proceeds are applied — much harder to manage if cover sits with a tenant.
- Protection of rental income. A landlord policy can include loss of rent insurance for the period of reinstatement, which is of no direct benefit to the tenant.
How the premium is recharged to the tenant
The mechanism for recharging the premium is set out in the lease. In a typical single-let FRI lease the tenant reimburses 100% of the buildings premium (plus Insurance Premium Tax) as a separate item of insurance rent, usually within 14 or 28 days of demand and with a copy of the insurer's invoice.
In a multi-let building the premium is apportioned between tenants on a "fair and reasonable" basis — most often by reference to the floor area each tenant occupies, but sometimes by rateable value or rental value. The apportionment is usually collected through the service charge alongside common-parts costs.
- The buildings premium, including Insurance Premium Tax (IPT).
- A fair apportionment in a multi-let building, with a clear basis (floor area, rateable value, rental value).
- Optional covers expressly authorised by the lease — typically terrorism and loss of rent.
- Valuation fees where the lease permits a periodic RICS reinstatement cost assessment.
- Commission rebates retained by the landlord beyond what the lease permits — many modern leases require commissions to be disclosed or credited.
- Premium loadings caused by another tenant's use of the building that is not reasonably attributable to your demise.
- Cover for the landlord's own contents, plant or business activities elsewhere in their portfolio.
What the tenant is usually responsible for
Paying the buildings premium is only one part of a tenant's insurance picture. The landlord's policy is designed to cover the structure of the property; it will not protect the tenant's business. A typical UK commercial tenant should still arrange their own:
- Contents, stock and tenant's improvements — including any fit-out the tenant has paid for, which the landlord's policy will normally exclude.
- Business interruption insurance — to cover lost profits and additional costs if the premises become unusable after an insured event.
- Public and products liability — usually £2m to £10m depending on the activities carried out at the premises.
- Employers' liability — a legal requirement for any tenant with employees, with a minimum statutory limit of £5m.
- Glass and signage where the lease places these on the tenant, particularly for retail and hospitality units.
The lease should make clear which side of the line each item sits on. A common mistake is to assume the landlord's buildings policy automatically covers tenant's improvements — it rarely does without an express endorsement.
Common disputes and pitfalls
Insurance is one of the more frequent sources of friction between landlords and tenants. The disputes we see most often are:
- Adequacy of the sum insured. Tenants paying the premium have a clear interest in the buildings sum insured being accurate. Under- or over-insurance becomes their problem at claim time or renewal.
- Commission and broker arrangements. Where the landlord uses a tied broker, tenants increasingly ask for transparency on commissions and rebates.
- Apportionment in multi-let buildings. A change in tenancy mix or a major refurbishment can change the "fair and reasonable" split between tenants.
- Uninsured risks. A loss caused by an excluded peril (often subsidence, terrorism or flood in a high-risk postcode) can leave neither side with cover unless the lease anticipates it.
- Renewal disclosure. Tenants should receive a copy of the policy schedule or summary on request — refusal to provide it is a regular complaint at renewal.
Checklist before you sign
- Who arranges the buildings policy and on what basis (reinstatement, all risks or named perils).
- The defined list of insured risks, including whether terrorism, flood and subsidence are included.
- How the premium is recharged, and the apportionment basis if the building is multi-let.
- Whether the landlord must obtain cover from a 'reputable' insurer and provide a summary on request.
- What happens to the rent and the lease if the building is destroyed or becomes uninhabitable (the 'rent suspension' and 'termination' clauses).
- Whether the landlord must arrange loss of rent cover, and for what indemnity period (usually 24 or 36 months).
- The tenant's obligation to comply with insurer warranties — particularly for hot works, fire alarms, sprinklers and unoccupied periods.
Frequently Asked Questions
Who should pay building insurance on commercial property in the UK?
On almost every UK commercial lease the landlord arranges the buildings insurance and the tenant reimburses the premium as insurance rent. In a multi-let building the cost is apportioned between tenants, usually by reference to floor area. Owner-occupiers without a lease arrange and pay for the cover themselves.
Can a commercial tenant insure the building themselves instead?
In practice this is rare. Lenders, landlords and the realities of multi-let buildings mean the landlord almost always retains control of the buildings policy. Tenants who want greater certainty over cover usually negotiate the insurance clause in the lease rather than trying to insure the structure themselves.
What is insurance rent on a commercial lease?
Insurance rent is the amount the tenant pays to reimburse the landlord for the buildings insurance premium (and Insurance Premium Tax). It is collected separately from the principal rent and is usually due within 14 or 28 days of the landlord providing a demand and a copy of the insurer's invoice.
Does the tenant still need their own insurance?
Yes. The landlord's buildings policy covers the structure of the property, not the tenant's business. A typical commercial tenant still needs contents and stock insurance, business interruption cover, public and products liability, employers' liability (where they have staff), and cover for any tenant's fit-out or improvements.
What happens if the building is destroyed and cannot be reinstated?
Most commercial leases contain a 'rent suspension' clause that pauses the principal rent while the building is being reinstated, and a 'termination' clause that lets either party end the lease if reinstatement is not possible within a defined period (often two or three years). The landlord's loss of rent insurance is what funds the rent during this period.
How is the premium split between tenants in a multi-let building?
The lease should set out a 'fair and reasonable' apportionment basis. The most common approach is by net internal floor area, but rateable value or rental value are sometimes used. Tenants are entitled to ask for a breakdown of the apportionment and a copy of the insurer's documentation supporting it.
Can the landlord keep insurance commission?
Many older leases are silent on commission, which has historically allowed landlords (or their brokers) to retain it. Modern leases increasingly require commissions to be disclosed and, in some cases, credited back to the tenants. It is reasonable to ask for transparency on this at lease renewal.
