Business insurance as a commercial landlord
Before the recession, there was a constant stream of people wanting business premises, so being a commercial landlord made good economic sense. As evidence of this, look at the popularity of the Real Estate Investment Trusts (REITs). Across the US, there are a number of significant players that own office blocks, regional malls, shopping centers, healthcare centers, and residential accommodation. Despite the recession, these investment vehicles have continued to bring in steady dividends. This level of performance has not been matched by the owners of individual properties on Main Street or for private letting as residential accommodation. Large numbers of properties on Main Street are shuttered and there's no sign of any real demand to maintain rental income. Unless demand picks up, rents will continue to fall. With mortgages now more difficult to obtain, there's better performance in the residential market as people need rented accommodation, but care must be taken when buying property. A significant number of homes are going through the foreclosure process and, if you have the capital, can be bought relatively cheaply in auction. So long as you have professional surveys to ensure the properties are physically sound, these acquisitions represent a good long-term investment, i.e. at some point, the property market will recover and values will rise. But if you bought at the top of the boom, you may be struggling to cover the financing costs out of revenue.
Insurance is obviously a key requirement as a commercial landlord. In this, remember you are not just protecting the physical structure of the buildings you rent out. There are other risks to consider. However, the insurance industry has been quick to draw a number of red lines so, if you are still at the planning stage, here are some of the factors to consider. Particularly when the buildings are to be used for manufacturing, there's a real risk of damage to the fabric through the activities carried out on the premises. In any other property, there will be wear and tear. People are never as careful of rented property as they are of their own. If the public are allowed into the common parts, they can also be a source of damage. Insurers believe it's for you to accept the slow deterioration of the property through general use. A proportion of the rent you collect should be set aside for routine maintenance, repairs and redecoration. But if the risk comes from the activities of one or more of those renting, you should impose an obligation on the renters to carry their own insurance so that there will be money available to repair any structural damage.
Look very carefully at the cover against more extreme weather events and beware exclusions against settlement that causes cracks or other structural problems that may lead to rot, corrosion, molds, insect infestations or similar damage. Business insurance for the commercial landlord is all about passing on the risks to other parties. So if a contractor produces faulty workmanship and this causes damage, you need this contractor to have good insurance to pay for repairs. If the property is vacant, give notice to your insurer and check the rules on what security measures you should put in place. If you think the standard business insurance inadequate, pay for additional cover.