Commercial buildings: Purchasing, renting and insuring
Article revised on 13 March 2019
Are you about to launch a company? Is your business doing well and starting to grow? Before you embark on a search for an office or commercial building to meet the new or growing needs of your business, you need to choose between renting and purchasing. Of course, this decision should be made after a thorough assessment has been carried out by taking several factors into account. And did you know that your decision can have a significant impact on your commercial insurance? Here are five tips to help you avoid unpleasant surprises!
1. Before renting or purchasing, find out the nature of the activities of the building’s tenants and neighbours
Insurers take many factors into consideration to calculate your commercial insurance rates, such as the value of your property and the nature of your activities. But did you know that the type of activities carried out by your tenants and neighbours located less than 30 metres from the building can also affect your insurance rates, and even make it more difficult for you to get coverage?
When you visit offices or buildings, it’s important to find out about the nature of your potential tenants’ or neighbours’ activities. For example, some insurers may refuse to insure you if you rent or own a building located close to a bar or a business that uses dangerous chemical products.
If you’re looking to rent an office, ask the landlord about his or her selection criteria. You will reduce the likelihood of seeing the neighbouring premises being rented to a business involved in activities insurers deem risky.
2. Before you rent, make sure you know the landlord’s insurance requirements
Read the lease carefully, and make sure you understand each clause before signing it. Landowners typically have very specific requests with regard to insurance.
For example, your landlord may:
- Require that your insurance contract includes certain coverages or certain specific insurance amounts.
- Ask to be added to your contract as an additional insured, in order to be covered in the event of proceedings related to civil liability of the premises and the activities you carry out within the building.
- Include a “waiver of subrogation” clause in the lease (typically including a provision to institute legal proceedings). This way, if you make an insurance claim for damage for which the landlord is liable, your insurer will not be able to take legal action against him or her to recover the compensation paid to you.
- Require that your insurance covers the building if you agree to a “triple net lease”, which could oblige you to assume various additional expenses, such as landowners’ taxes, building insurance or maintenance fees.
In any event, do not hesitate to contact your insurance representative to find out about the possible consequences of these requirements!
3. Before purchasing, find out everything you can about the building
To avoid unpleasant surprises, it’s vital to have a complete professional assessment carried out on the building you intend to purchase. This assessment should give you a detailed report on the state of the building and its maintenance, renovation and loss history.
4. Before purchasing, find out the creditor’s insurance requirements
It’s not uncommon for a creditor to ask for amendments to the clauses of a standard insurance contract. If this happens to you, immediately notify your insurance representative to get his or her advice so that you fully understand the possible impact these modifications can have on your insurance coverage and rates.
5. Before finalizing the purchase, take the time to carry out all the necessary checks and processes
Once you reach an agreement with the seller, ask for a 30-day period before finalizing the transaction. This will give you enough time to review the sale documents, get a few insurance quotes and carry out the necessary checks and processes to make sure you’re making an informed purchase.
Your insurance representative is available to advise you and help you secure your investments in your business. Don’t hesitate to contact him or her before you sign the lease or finalize the purchase!
Business Development Bank of Canada – Buy or lease commercial real estate
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