The importance of accurate tenant type disclosure

By Jack Durrant BA (Hons) ACII, Client Director.

In a recent podcast, we delved into the significance of ‘tenant type’ disclosure and why it shouldn’t be taken lightly, particularly for property owners. The underlying principle is simple: providing brokers and insurers with comprehensive information is essential for making accurate judgements regarding risk coverage and appropriate insurance amounts.

When seeking insurance for your property– whether residential or commercial– it’s crucial to disclose all the relevant details with your broker or insurer. Even for a residential property, there’s a wealth of information that insurers would like to know. For example, a house rented to students is likely to attract a higher premium compared to one occupied by retirees. Similarly, a landlord should consider the potential fire risk before leasing a unit to a welder when situated next to a textile factory.

Insurers need to be aware of the tenant type for both commercial and residential properties. If there’s a change in tenants, it’s prudent to notify your insurer. While many insurers provide full coverage for up to 30 or 45 days when a property is unoccupied, they still prefer to be informed and understand the plans for re-letting the property. In cases of unoccupied properties, insurers often impose restrictions and additional conditions to mitigate risks such as water damage, vandalism, and property claims. This reduction in coverage typically applies to a limited number of perils, such as fire, lightning, earthquake, explosion, and impact by aircraft.

I’d strongly recommend notifying an insurer about a change in tenant. If you had been renting an office space with computers and printers that transitions into a precious metal’s wholesaler, the risk profile completely changes, and the insurer would need to recalculate the applicable premium accordingly.

Similarly, significant alterations to a property’s structure should be disclosed to your insurer or broker. This gives uninterrupted coverage for both the business and the building. Major works that impact the buildings fabric have implications for the insurance policy, and it’s best to keep the broker informed to avoid any gaps in coverage.

Accessibility is another factor that can affect both tenants and the landlord’s insurance for a building. Insurers often view shared occupancy with caution, although they may consider multiple occupancy if there’s a clear connection between the businesses or a valid explanation of how and why shared occupancy works. Insurers hesitate due to concerns about responsibility for building control, the potential impact of one business on the insurance and risk of the other, and increased moral or physical hazards that may arise from shared premises. If one business has poor health and safety practices or risk management, it could affect the insurability of the other occupants.

In summary, it’s of utmost importance that brokers have access to all relevant information, even for seemingly straightforward risks such as landlord and property insurance. The occupants of a building can significantly influence which insurers are willing to provide quotes and how much they charge. Any factors that impact the premium or an insurer’s decision will ultimately affect the claims process if incorrect disclosure has been made.