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Understanding Commercial Real Estate Occupation Risk

21 January 2020

Estimated Read Time: 3 minutes 30 seconds

Commercial real estate is a significant investment and owners need to take steps to protect it. We take a closer look at some of the actions landlords can take to mitigate risk in their properties.


Consider tenant activities

Tenant activities will have a significant bearing on how high insurers consider your risk level to be. What are they doing, what are the risks and how well are they managing them? For example, kitchen fires continue to be one of the most common causes of loss in commercial property so where tenants operate such facilities it is important to ensure:

  • equipment is correctly installed and maintained.
  • high standards of housekeeping and staff training are in place.
  • suitable extraction equipment is installed and robust cleaning regimes are applied.

Insurers will typically apply policy conditions to the policy when commercial kitchens are present to help ensure appropriate controls are maintained. It is important to understand and comply with these conditions.


Think about business continuity

Taking steps to minimise the potential losses caused by risks can ensure that you and your tenants are minimally impacted by any incidents. Your insurer should be able to help with risk management.

The NIG Risk Control team is often involved in post loss visits, to help establish why the incident happened and what steps can be taken to reduce risk and prevent repeat issues.

For example, we were the insurer of a property investor who owned an industrial food park development. One of the units was occupied by a food manufacturing business which experienced a fire in one of its cooking ranges. A cooking process had failed, resulting in significant loss to the property and ultimately the unit having to be reinstated.

Following the post loss visit we advised on an upgrade to the fire protection measures that compartmented the cooking process more effectively from the rest of the building.  In the event of a repeat there would be a much better chance of containing the event rather than having a more substantial loss.

There was also collaboration undertaken by our landlord team at NIG and the tenant’s insurer, which assisted with the reinstatement process. They created a one-hour fire compartment within the building with local fire suppression to the cooking range.

Unfortunately, three years later the tenant did have another fire. This time, however, the loss was minimal, saving all parties a significant sum of money. The tenant’s business was up and running more quickly, and the landlord suffered minimal interruption because there was no need to resurrect the property and the tenant was able to continue trading.


Be aware of legislation changes

Commercial property owners also have a range of legal obligations and it’s important to keep abreast of changing legislation to ensure ongoing compliance. For example, the 18th Edition IET Wiring Regulations came into effect on 1 January 2019. These regulations apply to the design, erection and verification of electrical installations; and additions and alterations to existing installations.


Consider the risks, and opportunities, of new technologies

Emerging technology, for example complex building energy management systems can present new risks. However, new technology can also bring benefits, with one of the most obvious recent developments being drone technology. For example, the traditional way to inspect a roof would be to put a person on the roof. This might entail erecting a scaffold and suitable edge protection or use of other access equipment. Now it is possible to fly a drone over with high-resolution cameras. This is quicker, cheaper and safer, though not of course without some level of risk and therefore needs to be completed in compliance with appropriate regulations and with suitably qualified pilots.


Choose the right insurer

As a Commercial Real Estate investor, managing the risks associated with your assets is key to success. Working with a financially stable insurance partner with a deep understanding of the Commercial Real Estate sector will certainly help, so ask yourself:

Does your insurer have
  • a specialist Real Estate Team?
  • tailored Real Estate products?
  • an in-house Risk Control Team?
  • “A” Rated financial strength?


At NIG the answer is yes to all of these questions and we have a real appetite to insure well-managed Commercial Real Estate business. More information and greater insight into some of the risks highlighted in this article can be found at: https://nig.com/trading-support