The Chamber of Commerce of Metropolitan Montreal

Buying or leasing: what you need to know about insurance

 

Are you starting up a new business, or considering moving your business to a new location, and not sure if it would be better to buy or lease a building? Leasing is often a worthwhile option, particularly for businesses that are just starting up. Owners of businesses with more regular working capital are generally more inclined to take the plunge and buy their office space. Regardless of the option you are considering, there are many factors you should mull over in order to make an informed choice. Here are some useful tips that can spare you some unpleasant surprises with regard to your insurance.

Location

Determine the nature of activities of other businesses that have office space in the building

The cost of your commercial property insurance is based on a number of factors. The value of your belongings and the nature of your activities are, of course, considered in the equation. You may not already know it, but the commercial activities of the building’s other occupants can impact the insurance premium you pay as a tenant or even cause you to have difficulty obtaining insurance!

When visiting office space for lease, determine the nature of the commercial activities carried out by other tenants (your prospective neighbours). Also ask about the owner’s selection criteria. By doing so, you could avoid being next door to a bar, a company that uses hazardous chemicals or any other type of business that engages in what insurers consider to be high risk activities.

Check on the landlord’s requirements with regard to insurance

Most landlords have particular requirements with regard to insurance. Read the lease carefully before you sign it, and make sure you have a good understanding of all the clauses, to avoid any unpleasant surprises.

The landlord’s requirements might include the following:

  • You may have to hold certain types of coverage or specific coverage amounts. In addition to property insurance, the landlord will probably ask you to have insurance to cover your civil liability for the premises and rental liability, the amount of which is at least equivalent to the replacement value of the leased space.
  • You may have to add him or her as an additional insured under your contract. If you incur damage for which your landlord is considered to be responsible, the fact that he or she is indicated in your contract as an additional insured prevents your insurer from suing him or her to recover the compensation paid to you.
  • You may have to purchase insurance as owner of the premises.
  • You may have to accept the insurance coverage that the landlord purchases for you and pay the premium.

In any event, don’t hesitate to contact your insurance representative. You’ll want to make sure you have a good understanding of all the ins and outs of the insurance requirements!

Buy

Make sure you know everything about the building you’re purchasing

The building you’re interested in may seem like a real find, but to be on the safe side, have it properly inspected and find out about its history in terms of maintenance, renovations and losses.

Determine the nature of activities carried out by other building tenants and neighbouring businesses

If there are other building tenants or neighbouring businesses located less than 100 feet from the building, find out if their activities could cause you to be charged an extra premium or have difficulty obtaining insurance. Some insurers will deny you coverage if the building is located near a bar, a factory or a company that does welding or uses chemicals or hazardous products.

Ask about the creditor’s requirements with regard to insurance

Creditors often ask to have amendments made to exclusions typically contained in insurance contracts. For example, they may require an amendment to an exclusion concerning reconstruction on the same site or the addition of a replacement value clause without deduction for the foundations or footings.

Remember that these amendments, once accepted by the insurer, will be reflected in your insurance premium! It’s best to discuss the matter with your insurer without going any farther in the process.

Take your time in concluding the transaction

It is reasonable to request a 30-day period between the time of entering into an agreement with the seller and the date of the transaction. This period will give you time to examine all the required documents and carry out the necessary checks and processes, including getting some insurance quotes.

Don’t hesitate to contact your insurance representative BEFORE finalizing your transaction. He or she is there to advise you so that you can make the right decision regarding this important transaction.

For more information:
La Capitale General Insurance – Commercial Insurance
Business Development Bank of  Canada – Buy or lease commercial real estate

 

Christian Vanasse, Senior director, commercial-lines insurance
La Capitale general insurance