Insurance in Retail Property: Who’s Really Paying the Premium?
Ah, insurance. One of life’s great contradictions. You pay and hope you’ll never need it, but the moment you try to cut corners or opt out, that’s when fate tends to strike. Retail tenants know this feeling all too well, particularly when it comes to the kind of insurance that's buried deep in the clauses of their lease.
This blog unpacks what’s really going on behind the scenes of those insurance invoices you get from your landlord, and what you need to look out for to avoid footing someone else’s bill.
Who Actually Arranges the Insurance?
In most retail leases, it’s the landlord who arranges the insurance and then recharges the cost to the tenant. This makes practical sense — the landlord wants to make sure the building is covered and doesn’t want to rely on tenants remembering to arrange it themselves.
So far, so reasonable. But it’s what happens after that where things get murky.
Is Insurance Rent?
Some leases define insurance charges as “Rent” with a capital R. That might seem like legal semantics, but it’s a big deal. If a tenant falls behind on a payment defined as Rent, the landlord can send in the bailiffs under CRAR (Commercial Rent Arrears Recovery), bypassing the courts and racking up additional costs for the tenant. So if you see insurance listed as Rent, process those invoices fast or risk a visit from enforcement.
VAT and the Double Whammy
Here’s where it gets really irritating. Insurance is subject to Insurance Premium Tax (IPT), usually at 12%. But when the landlord recharges it to the tenant, and if they’re VAT-registered, they often apply 20% VAT on top of the entire bill — including the IPT.
That’s tax on tax. And it happens more than you’d think.
Some non-VAT registered landlords just pass on the cost without VAT, treating it like a disbursement. But if VAT is added, make sure it's supposed to be.
The Three Big Insurance Covers
There are three common types of insurance that landlords tend to recharge:
1. Reinstatement Cover
This covers the cost of rebuilding after damage, like from fire or flooding. It should be based on a proper Reinstatement Cost Assessment (RCA) by a qualified professional. The lease may even allow the landlord to recharge the valuation fee itself, so check the fine print.
But how is the total cost divided? Some leases fix it at a certain percentage, others use a “fair proportion” — whatever that means. It might be based on floor area or rateable value, but either way, tenants should request evidence of how that figure has been calculated.
Real Case: The Tenement Building Mix-up
One tenant discovered they’d been covering nearly the whole insurance premium for a large building — turns out the landlord had mistakenly charged everything to the ground-floor commercial tenants, including the costs for the residential flats above. Once spotted, the landlord admitted the error and reimbursed the past six years. A lucky escape, but only because the tenant asked the right questions.
Real Case: The Pizza Oven Fire Risk
In another building, one tenant noticed the premium had gone up. They queried whether their neighbour’s wood-fired pizza oven was pushing up the risk factor. They were right. The insurer had added a fire loading to the entire building, and once it was challenged, that cost was redistributed fairly. A win for vigilance.
2. Loss of Rent
Landlords often insure against the loss of rent if the property becomes unusable. But if your lease only allows for three years’ cover and the landlord insures for five, you are paying too much!
Also make sure there’s a Rent Cesser clause — this is what allows your rent to be paused while the premises are unusable. Some leases have a waiting period (like six weeks), which can cause confusion about when the rent suspension actually begins.
3. Terrorism Cover
Following the IRA bombings in the 90s, terrorism insurance became a government-backed necessity. Enter Pool Re, the UK’s answer to uninsurable terror risks. Landlords usually include this as a separate line item. It’s a legitimate cost — as long as it’s in your lease.
The Trocadero Case: When Commissions Creep In
Possibly the most important recent case in this space is Trocadero (2025). A cinema tenant challenged their landlord’s insurance charges, claiming that undisclosed broker commissions were being folded into the premium — to the tune of 57% in some years. The court agreed. The lease allowed recovery of “the premium payable”, but not hidden add-ons or shared commissions.
This case doesn’t automatically change every lease, but it does mean tenants should now ask for a full breakdown of what makes up the insurance costs. If the landlord can't justify it, you may have a claim to recover past overpayments — up to six years’ worth.
The Duty to Get a Good Deal
Is your landlord required to shop around for the best price? Only if the lease says so. Phrases like “reasonable endeavours” to secure competitive rates help keep them honest. Without that clause, they could just use their mate’s brokerage firm and you’d be the one footing the bill.
And some do just that. I’ve seen cases where a bit of digging with an independent broker revealed the tenant could have got the same cover at a much lower rate — and sometimes, with enough pressure, the landlord agreed to let the tenant insure the building themselves.
Property Owner’s Liability: Not Your Problem
Sometimes landlords sneak in a charge for Property Owner’s Liability insurance. That’s their protection against injury or damage claims as owners, not as your landlord. Unless your lease explicitly allows it, you shouldn’t be paying this.
What Happens When Disaster Strikes?
When something goes wrong — fire, flood, or frozen sewage from a plane (yes, that’s happened) — the landlord must not just pocket the insurance payout. The lease should oblige them to start the reinstatement process quickly and thoroughly. If there’s a shortfall in the insurance, they should make up the difference themselves.
Just make sure the lease also excludes Subrogation. This stops the insurer stepping into the landlord’s shoes and suing you for the damage, even though you’ve been paying for the insurance. No Subrogation clause? You could end up on the hook for everything.
Final Thoughts: Always Read the Lease
Insurance isn’t glamorous, but in commercial property it can be expensive, complicated and unfair — if you’re not paying attention.
So here’s the takeaway: read the lease. Check the small print, challenge unexplained costs, ask for breakdowns, and don’t be afraid to push back.
Because as That Retail Property Guy always says: when it comes to insurance, the devil’s in the drafting.
Thank you for reading! To hear even more, tune in to the Insurance episode on the podcast: "That Retail Property Guy." If you found the insights relevant and useful, please consider leaving a review or visiting our website at thatretailpropertyguy.com for more resources. And remember, thorough lease reading is your first line of defense!