Renting Out Your Commercial Space? Know Your Risks

Leasing your property can be a great way to generate steady income, but many landlords underestimate the risks that come with it. Spotting those early makes it easier to protect both your building and your cash flow.

Damage & Liability Aren’t Tenant Responsibilities

Even with tenants in place, landlords usually carry responsibility for building damage, liability if someone is injured on-site, loss of rental income, theft, and issues like broken glass.

Relying on a tenant’s policy to cover those exposures is unreliable; in most cases, it won’t.

Your own policy should clearly cover property damage, income protection, and third-party claims.

Fact sheets from the Insurance Council of Australia 2025 show that in the past 12 months, property damage and liability still accounted for over half of SME-related claims.

CAUTION

As many as one in five Australian SMEs are underinsured when it comes to building replacement or lost income, according to the Insurance Council. With construction and repair costs having risen sharply in recent years, regular policy reviews are essential to make sure your cover matches the true value and risk profile of your property

Tenant Default and Rent-Loss Safeguards

Current product updates from insurers reveal how rent-default protection is evolving.

Some policies now cover up to a year of lost rent and provide extras like equipment breakdown. For landlords, that kind of protection can mean the difference between stable cash flow and months of lost income if a tenant walks away.

National office vacancies climbed to a 30-year high in mid-2025, averaging 14.3% across CBDs and exceeding 17% in some suburban precincts, according to the Property Council of Australia. Sydney and Melbourne remain elevated, underlining the income risks commercial landlords continue to face.

As well as vacancy rates, be mindful that about one in nine new Aussie SMEs cease trading in their first year.

Lease Clauses and Insurance Obligations

A good lease should spell out who’s responsible for what when it comes to insurance.

Commercial landlords usually cover the building itself as well as common areas, while tenants take care of their own contents and liability.

The rules aren’t the same everywhere, though. In Victoria, for instance, retail leases fall under the Retail Leases Act. That means extra obligations like having a written agreement in place and providing a disclosure statement before anyone signs.

The main takeaway? Don’t assume one lease fits all. Check whether your property is retail or non-retail, know what the law says in your state, and make sure your lease reflects it. That way, when something goes wrong, there are no arguments about who’s meant to be covered.

Gaps and Misconceptions to Avoid

It’s common for landlords to assume the tenant’s insurance will extend to cover their own risks. In reality, shifts in how a space is used, flood events, broken fixtures, or lost rent often lead to disagreements on who is responsible for cost.

Market conditions currently favour well-prepared owners; insurers have recently been more competitive, with some owners reporting modest premium reductions where they can demonstrate good risk controls.

For landlords with smart buildings or those using digital tenant management platforms, several insurers now offer cyber coverage add-ons for building systems and data. With the rise of connected devices, it’s worth discussing cyber protections with your broker or adviser.

According to the Insurance Council, insurers paid $2.19 billion in extreme weather claims in 2023–24, with nearly 157,000 lodged. Flood remains the costliest peril, and around 1.2 million properties nationwide face some level of flood risk.

Inspect Regularly to Avoid Surprises

A recent insurer’s survey found about one in six landlords either inspect just once a year or skip inspections entirely. That leaves a lot of room for issues like leaks, mould or failing equipment to go unnoticed, potentially complicating a future claim.

Carrying out inspections every three to six months helps identify problems early before they become expensive.

Pulling it All Together

• Building cover matters - Tenant insurance won’t protect your structure
• Protect your income - Rent default or vacancy can last months
• Know your lease - Clearly define who insures what
• Close the gaps - Risks like flood, glass or lost rent are often excluded
• Stay proactive - Regular inspections reduce maintenance shocks

Before renewing insurance or agreeing to a new lease, review your cover so it reflects the reality of your tenant, your property and today’s market conditions.Partnering with us helps you get policies tailored to your risks, instead of assuming a tenant’s policy has you covered. Contact the team at BICS today.

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