For commercial properties where the party living in or otherwise using the premises is not the owner, figuring out who pays what for building insurance can be confusing, especially for first-time renters and inexperienced landlords.

In this guide, we explain whether it is the landlord or tenant’s responsibility to organise and pay for building insurance – and how it relates to underinsurance risk.

Who should pay building insurance for commercial property?

Legally, it is almost always the landlord’s responsibility to organise building insurance for their property. And with their name on the insurance contract, technically, the landlord will also be the one paying the monthly insurance premiums for the policy.

This is because landlords have the “insurable interest”, i.e. they suffer the financial loss in the event the building is destroyed or severely damaged, and, therefore, it’s the landlord the cover protects.

Granted, losing a home is awful even if rented, but in most cases, a tenant can simply rent a different building and move on. Landlords, on the other hand, are down one highly valuable asset if it, for instance, burns down.

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Whether a residential property with a live-in tenant or a commercial property with a business occupant, ultimately, the burden of choosing and paying for building insurance falls squarely on the landlord’s shoulders.

There are multiple practical reasons why this is the ideal arrangement:

• Tenants may choose insufficient coverage
• Tenants may fall behind on payments without you knowing
• You may not be noted or jointly named on the policy, so the insurer may refuse to pay on a claim

It all boils down to control. As the one responsible, you, the landlord, need to have control over the type of policy chosen, the payments, and the surety of a payout when you need it.

Can landlords pass the cost of building insurance to the tenant?

Landlords can pass the cost of building insurance premiums to their tenants in their property lease agreement.

See, while building insurance premiums are paid by you the landlord – as in the money comes out of your bank account – that money may be paid to you by the tenant ahead of time, alongside base rent. This clause is typically referred to as “insurance rent” on the lease.

In these arrangements, the landlord usually pays the annual premium upfront, then recovers it gradually from the tenant over the course of the year.

It’s still the landlord’s responsibility to pay the policy provider, but the tenant is covering the cost.

Insurance rent clauses are understandably a popular way of dealing with the cost of building insurance for commercial property. However, convenient though it may be, it’s not without its risks.

Insurance rent – Risk for landlords explained

The risk for landlords taking the insurance rent approach to cover building insurance is that unclear terms may result in withheld payments, potentially preventing you from recouping the costs from your tenant.

To ensure there is no confusion about what the tenant is agreeing to pay and why, it’s essential to word the lease agreement very carefully.

It should lay out in no uncertain terms what is expected of the tenant, which is where “insurance rent” as a clause comes in handy. It explicitly references what the associated fee is for. Be sure to use this dedicated clause rather than lumping insurance fees in with, say, general service charges, as these refer to standard costs such as cleaning or general repairs.

That said, even with an insurance rent clause in place, landlords should be mindful that poor drafting or vague definitions can still expose you to dispute. If the clause does not clearly define the scope of the insurance costs, how they are calculated, or when they are payable, tenants may challenge the charge or withhold payment altogether.

Related – The Renter’s Rights Act 2025 and rebuild costs: Will your portfolio be underinsured?

To mitigate this risk, the lease should clearly specify the type of insurance covered, confirm whether premiums are recoverable in full or apportioned, and set out the payment mechanism and timing. Where possible, cross-referencing the clause to supporting schedules or providing illustrative examples can further reduce ambiguity.

Ultimately, clarity is your strongest protection. A well-drafted insurance rent clause not only improves cost recovery but also reduces the likelihood of disputes, delays, or strained landlord-tenant relationships over insurance contributions.

But don’t let the idea of an airtight lease agreement distract from the fact that you are in charge of acquiring the policy, meaning you take on the broader risks in full, including underinsurance risk.

Commercial buildings and underinsurance

As a landlord, you’re the sole party responsible for ensuring a building insurance policy provides sufficient protection to fully cover your losses if your property is damaged or destroyed. To get started comparing policies, we recommend reading our guide: Comparing building insurance – Everything you need to know.

Guessing or basing coverage on outdated rebuild valuations will almost certainly lead to underinsurance, as material and labour costs, regulatory updates, EPC requirements, and even location can elevate reinstatement costs over time.

Should you need to make a claim, the payout would be tied to the historical rather than current rebuild cost of your property, leaving you with a potentially major shortfall. You may also be hit by the average clause, which can further reduce your payout.

To avoid underinsurance, it’s important to book regular reinstatement cost assessments.

Get the right coverage for your commercial property

Buildings reinstatement cost assessments provide an up-to-date rebuild value for your property that you can take to your policy provider to kickstart coverage adjustment.

At Cardinus, we deliver upwards of 30,000 property surveys each year, and our nation-wide network of experienced assessors can evaluate any property type, wherever it is in the UK.

We’re a RICS-regulated organisation, with rigorous internal quality assurance tests to ensure our assessors are fully equipped to deliver the most accurate possible rebuild valuations, regardless of property or portfolio complexity. Rule out underinsurance; book a reinstatement cost assessment from Cardinus today.