Landlords – Are you ready to “test the market” for building insurance?

The way that landlords arrange building insurance for their tenants is set to change following a successful challenge of current policy.

It is common in leases for the landlord to insure the building, with the tenant reimbursing the cost of the insurance premium (or contributing towards the cost of the insurance premium where the property leased is part of a building, or on an estate).

The judgment set out in Cos Services Limited v Nicholson & Willans is a challenge to this status quo. At the conclusion of the case it was ruled that, while a landlord is not required to find the cheapest building insurance and premium on the market, they do need to:

• consider the lease and the potential liabilities that are to be insured against; and
• be able to explain why a particular policy and premium was selected and explain the steps taken to assess the current market.

What should landlords do?

Landlords would be wise to instruct their brokers to “test the market” and the competitiveness of any quotes obtained.

The landlord may then be required to satisfy a tribunal on the balance of probabilities that its costs have been reasonably incurred.  If they fail to do so, a tribunal could order that the tenant’s contribution towards the insurance premium be less than the actual premium paid by the Landlord.

The constantly shifting responsibilities that landlords face are difficult to manage alone – that’s why Astle Paterson offers legal services for landlords, helping them to stay on top of legislation and stay covered.

Contact one of our commercial property specialists directly to learn more.