Insurance Requirements in NZ Commercial Leases: A Tenant's Guide

What Your Commercial Lease Requires

Most businesses leasing commercial premises sign a lease without reading the insurance clauses carefully. This is a significant oversight — commercial leases routinely require tenants to hold specific types and levels of insurance as a condition of the lease agreement.

Failure to maintain required insurance is a breach of your lease, which can have serious consequences including termination by the landlord. Even if your landlord doesn't actively check, if an incident occurs and your insurance does not match what the lease requires, you may find yourself personally liable for losses that you thought were covered.

This guide covers the typical insurance requirements in commercial leases and what tenants need to do to comply.

Standard Insurance Clauses in Commercial Leases

Most commercial leases are based on the Auckland District Law Society (ADLS) Deed of Lease form. This standard form includes the following insurance obligations for tenants:

Public Liability Insurance

Tenants are typically required to hold public liability insurance with a minimum limit specified in the lease. Common minimum limits are:

• $1 million (older leases and simpler premises)
• $2 million (standard commercial premises)
• $5 million (larger premises, shopping centres)
• $10 million (high-traffic or high-risk premises)

The landlord is often required to be noted as an interested party on the tenant's public liability policy. Check your lease for this requirement.

Plate Glass and Signage

Standard leases often require tenants to insure plate glass (shopfront windows, internal glass partitions) in their premises. The landlord's building insurance may or may not cover glass — if the lease requires you to insure it, ensure your policy includes plate glass cover.

Contents and Improvements

The tenant is responsible for insuring:

• Business contents (furniture, equipment, stock)
• Tenant improvements and fit-out (including any improvements made to the premises during the tenancy)

Note that the landlord's building insurance covers the base building structure but not tenant improvements or contents. Ensure your policy values adequately reflect any fit-out investment.

Business Interruption

Some leases require tenants to hold business interruption insurance. Even where not required by the lease, BI insurance is strongly recommended — it covers the costs (including rent) during the period you cannot trade following an insured event.

Special Requirements in Shopping Centres

Shopping centre leases typically contain more extensive insurance requirements, including:

• Higher public liability limits (commonly $10 million or more)
• Specific policy wordings or approved insurers
• Requirements for the landlord to be noted as an additional insured
• Workers compensation requirements for any contractors engaged by the tenant

Always read shopping centre lease insurance requirements carefully and consult your broker before signing.

What the Landlord's Insurance Covers

Understanding the boundary between your insurance and your landlord's insurance is essential to avoid gaps:

Landlord's Building Insurance typically covers:

• The building structure (walls, floors, roof, fixed fixtures)
• Common areas
• The landlord's own legal liability for the building

Landlord's Building Insurance does NOT cover:

• Your business contents, equipment or stock
• Your tenant improvements and fit-out
• Your business income if the building becomes unusable
• Your liability to third parties for events within your leased premises

Do not assume that because the building is insured by the landlord, your business inside it is protected. It is not.

The Landlord's Right to Inspect Insurance

Most commercial leases give landlords the right to request evidence of your insurance compliance at any time. You may be required to provide:

• A certificate of insurance
• Confirmation of the policy limit
• Evidence that the landlord is noted as an interested party (if required)

Keep copies of your insurance certificates and present them promptly if requested. Inability to provide evidence of cover can trigger lease compliance procedures.

Notifying Your Insurer of the Commercial Lease

When you take out business insurance for leased commercial premises, always: 1. Disclose the lease requirements to your insurer or broker 2. Confirm the landlord is noted as an interested party if required 3. Ensure your policy limits meet or exceed the lease requirements 4. Provide your insurer with a copy of the relevant lease clauses

Some insurers will provide a certificate of insurance in a format acceptable for landlord compliance. Ask your broker to arrange this.

What Happens if You Don't Comply?

Failing to maintain the insurance required by your lease can have serious consequences:

Lease Breach Non-compliance with insurance obligations is a breach of the lease. Landlords can issue a breach notice and, if the breach is not remedied, proceed to terminate the lease.

Uninsured Losses If an incident occurs and you do not have the required insurance, you will be personally liable for losses that your policy should have covered. Depending on the incident, this could be devastating.

Landlord's Subrogation Rights If the landlord's building insurer pays a claim for damage caused by you as tenant, they may have the right to subrogate (claim back) that payment from you personally. Without liability insurance, you have no defence and no indemnity.

Getting the Right Cover for Your Commercial Lease

The simplest approach is to engage an insurance broker who specialises in commercial insurance: 1. Provide them with your lease (particularly the insurance clauses) 2. Confirm your policy meets all lease requirements 3. Get the landlord noted as an interested party if required 4. Obtain a certificate of insurance in the required format 5. Review at every renewal to ensure continued compliance

Contact us through this website to connect with a commercial insurance specialist who can help you comply with your lease obligations.