Know the risks of tenant fit-out works insurance

Don’t let your tenants carry out their own works on your commercial premises without the right insurance. Let’s find out more.

It’s natural for a tenant to want to carry out their own works on their leased premises, such as replacing a floor or painting the walls. It helps them make the place their own, so their premises accurately reflect their brand. As long as it’s OK with you, what’s the problem? However, if they don’t have the correct insurance, they could be exposing themselves to enormous risk, which could cause problems for you further down the line.

In this article, we’ll look in more detail at tenant fit-out works insurance and how your tenants can stay on the right side of the law.

Requirements for tenants 

In most cases, when carrying out fit-out works, tenants are required to take out a contract to:

• Purchase insurance for the existing structure of the building (such as the walls and floor, if not being built on)

• Take out a waiver of subrogation in favour of the tenant’s contractors and subcontractors carrying out the works

However, it’s the second part of these requirements where tenants often leave themselves open to future issues. The waiver of subrogation prohibits the tenant’s insurance company from pursuing the contractors or subcontractors if they accidentally damage the building. Without this waiver, things can get chaotic if something goes wrong. The insurance company could sue the contractors, who in turn could sue your tenants. The problem is that often tenants don’t take out this waiver, either because they don’t know they have to or because the landlord doesn’t provide a waiver for them.

Consequences of no waiver

Without a waiver, your tenants could expose themselves to massive uninsured risk. They may have the insurance for the building, but without the waiver, if something goes wrong:

• The building’s insurer may sue the tenant’s contractor for damage caused

• The contractor may then sue the tenant to cover their losses, because the tenant didn’t get a waiver of subrogation when required to

• The tenant is then exposed to uninsured risk for the total value of the existing structures, even though they took out the original insurance

If your tenant is suddenly in financial trouble, it could cause problems for you as their landlord in the future, so it’s best to ensure everyone knows where they stand before they start the works.

Why you need a commercial property solicitor

Tenant fit-out works needn’t be a huge issue, as long as everyone knows what is expected of them and goes through the proper processes.

In this situation, having an experienced property lawyer in your corner is almost priceless. Your lawyer will explain construction insurance, subrogation and what everyone is allowed to do - in plain English. They’ll also complete and submit all the necessary documents. Then, if there are any bumps in the road, they’ll protect your interests and ensure you get the outcome you need. 

Whatever you’re planning for your commercial property, don’t attempt it alone. Talk to your solicitor straight away.

Find out more from Couchman Hanson

At Couchman Hanson, our solicitors genuinely care about getting the best outcome for you. We’re highly professional, with ‘city’ level talent and experience, but also friendly and welcoming. Everything we do fits with our values of integrity, honesty and authenticity.

Call 01428 774756 or visit couchmanhanson.co.uk.