If you own a commercial building, whether personally or through a holding company, you need three core pieces: property coverage on the building, liability coverage as the owner, and rental income coverage if a loss leaves the space unusable. Just as important, the policy has to name the right owner and line up with your leases and your mortgage. That’s where gaps tend to show up.
Who this is for
This article is for two groups who often turn out to be the same people:
- Business owners who own the building their company operates from, often through a separate holding company.
- Real estate investors who own retail plazas, office or industrial units, mixed-use buildings or similar properties, and lease them to tenants.
The core coverages
The building
Property coverage pays to repair or rebuild the building after an insured loss such as fire, windstorm or water damage. A few things to get right:
- Replacement cost value. The limit should reflect what it would cost to rebuild today, not what you paid or what the building would sell for. Construction costs have climbed in recent years, so an old limit may be well short.
- Co-insurance. Many commercial policies have a co-insurance clause. If you insure the building for less than the required percentage of its value, a claim payment can be reduced, even on a partial loss.
- By-law and building code upgrades. After a loss, the municipality may require you to rebuild to current code. Those extra costs are often limited unless specifically covered.
Rental income
If a fire makes units unusable, tenants usually stop paying rent, but your mortgage, property taxes and utilities don’t stop. Rental income coverage replaces the lost rent while the building is repaired. Check the limit and how long the policy will pay, because major repairs can take a long time.
Owner’s liability
As the owner, you can be sued if someone is hurt on the property: a slip on an icy walkway, a fall in a common hallway, a sign that comes down in the wind. Leases often move some of that responsibility to tenants, but owners are still regularly named in claims.
Equipment breakdown
Boilers, HVAC systems, electrical panels and elevators can fail suddenly. Equipment breakdown coverage responds to that kind of mechanical or electrical failure, which a standard property policy usually excludes.
Flood and earthquake
Flood (overland water), sewer backup and earthquake are often excluded or limited, and have to be added. Whether you need them depends on the building’s location and construction and on your lender’s requirements.
Leases, vacancy and lenders
Your insurance has to match the documents around the building.
- Leases. The lease should spell out who insures the building, who insures improvements and contents, what liability limits tenants must carry, and whether you’re named as an additional insured on their policies. Collect tenants’ certificates of insurance every year.
- Vacancy. Most commercial property policies restrict coverage once a building has been vacant for a set period, often 30 consecutive days. If a tenant leaves or you’re between tenants, tell your broker before that period runs out.
- Lenders. Your mortgage likely requires specific coverage and requires the lender to be named on the policy. Check those requirements at renewal and when you refinance.
Where your business and family overlap
This is the heart of it for most owners. A common setup looks like this: the operating company runs the business, a holding company owns the building and leases it to the operating company, and the family owns the holding company. Sometimes the building is still in the owner’s personal name.
That structure works well, but the insurance needs to follow it:
- The right named insured. The building should be insured in the name of whoever actually owns it. If the holdco owns it but the policy is in the operating company’s name, or yours personally, a claim can become complicated.
- A clear split. The holdco typically insures the building and its owner’s liability. The operating company insures its contents, equipment, improvements and business interruption. The lease between the two should say so, even though it’s family on both sides.
- Liability limits that line up. If you carry a personal umbrella, check whether it extends to the holdco and the building, or whether the holdco needs its own commercial umbrella. It’s easy to assume the umbrella covers everything when it doesn’t.
- Growing portfolios. As you add rental properties, cottages or other buildings, it’s worth reviewing how they’re held and insured together rather than one at a time.
When one broker looks at the operating company, the holdco and the family’s personal policies together, these gaps are much easier to spot.
Next step
If you own a commercial building personally or through a holding company, book a review and we’ll go through how it’s insured.
Common questions
If my company leases the building from my holdco, who insures what?
Usually the holdco insures the building and its owner's liability, and the operating company insures its contents, equipment, improvements and its own liability, as set out in the lease. The lease should say who insures what, and each policy should name the right company. Gaps happen when the building is insured in the wrong name or both sides assume the other has it covered.
What is rental income coverage?
It replaces the rent you lose when an insured loss, such as a fire, makes the space unusable and tenants stop paying. Without it, you can still owe the mortgage, taxes and utilities while the building is being repaired.
What happens if my building is vacant?
Most commercial property policies restrict coverage once a building has been vacant for a set period, often 30 consecutive days. Some causes of loss, such as vandalism or water damage, may not be covered after that. Tell your broker as soon as a unit or building is expected to sit empty.
Do I need flood and earthquake coverage?
They're often excluded or limited on a standard commercial property policy and have to be added. Whether they make sense depends on the building's location and construction, and on what your lender requires.