Running a business from rented premises comes with responsibilities that aren’t always obvious. You might be leasing an office, operating a retail shop, managing a warehouse or temporarily hiring a venue for an event. Whatever the arrangement, accidents can happen, and sometimes those accidents result in damage to the property you’re using.
A staff member might accidentally damage a wall while moving equipment. A small fire could cause significant damage to a commercial kitchen. Or an overflowing sink might leave a landlord facing an expensive repair bill.
When something like this happens, an obvious question arises: does public liability insurance cover damage to rented premises?
The answer is that it can, but not always. It depends on the circumstances, your legal responsibility for the damage and the particular terms of your insurance policy.
How Public Liability Insurance Applies to Rented Properties
Public liability insurance is designed to protect businesses against certain claims involving third-party injuries or property damage arising from their business activities.
For example, if an employee accidentally damages another company’s equipment, public liability insurance may help cover the resulting compensation claim and associated legal costs.
But what happens when the damaged property belongs to your landlord?
Although you don’t own the building, you’re occupying it under a lease or rental agreement. This creates a slightly different situation because many public liability policies contain exclusions relating to property that is rented, leased or under the policyholder’s control.
Some policies make exceptions for rented business premises, meaning there may be cover for certain types of accidental damage.
Others have narrower provisions or require additional cover.
Simply having public liability insurance doesn’t automatically mean every type of damage to a rented building will be covered.
When Might Damage to Rented Premises Be Covered?
There are several situations where public liability insurance could potentially respond to damage involving rented commercial premises.
Accidental Fire Damage
Imagine a small catering business operating from a leased commercial kitchen.
An employee accidentally starts a fire while preparing food. Although the fire is brought under control, it damages the walls, ceiling and electrical fittings.
If the business is found legally responsible for the damage, its public liability insurance may respond, provided the policy covers liability for damage to leased premises and no relevant exclusion applies.
However, the landlord’s building insurance may also be involved. How the claim is handled will depend on the policies and the terms of the lease.
Damage While Moving Equipment
Consider a business relocating heavy equipment within its rented warehouse.
During the move, a piece of machinery accidentally strikes a wall, damaging the plaster and structural fittings.
The landlord subsequently seeks compensation for the repairs.
Whether the tenant’s public liability insurance responds will depend on how the policy treats damage to leased property, the circumstances of the accident and whether the business is legally liable.
Water Damage to a Leased Office
A business operating from a leased office accidentally causes water damage through its activities.
Water spreads across the floor, damaging carpets, internal walls and potentially the premises below.
Depending on the cause and the insurance arrangements, the business could face a claim from its landlord or another affected tenant.
Public liability insurance may offer protection against some of these claims, particularly where damage occurs to property belonging to a third party and the insured business is legally responsible.
These are hypothetical examples, rather than situations where cover is guaranteed.
Understanding the Care, Custody and Control Exclusion
One of the most important things to understand when considering damage to rented premises is the care, custody and control exclusion.
Many public liability insurance policies contain provisions that restrict cover for property belonging to someone else but held or controlled by the insured business.
This makes sense from an insurer’s perspective. Public liability insurance is primarily designed to address third-party liability rather than function as general property insurance.
However, the exclusion isn’t necessarily absolute.
Some policies specifically allow cover for damage to premises leased or rented for business purposes, including certain landlord-owned fixtures and fittings. Others provide exceptions for premises temporarily occupied by the business.
The distinction matters.
A business might have public liability insurance that covers damage to a neighbouring company’s property but doesn’t cover the same type of damage to the building it occupies.
The important thing is to check the specific wording of the policy rather than assuming all public liability policies provide identical protection.
Does the Landlord’s Building Insurance Cover the Damage?
Commercial landlords generally arrange insurance for the buildings they own. Depending on the policy, this may provide protection against events such as fires, storms and certain types of accidental damage.
But this doesn’t necessarily remove the tenant’s responsibility.
For example, if a tenant negligently causes a fire, the landlord may claim under their building insurance. The landlord’s insurer could then seek to recover some or all of the costs from the responsible tenant, depending on the circumstances and any applicable contractual arrangements.
This process is generally known as subrogation.
Importantly, the arrangements can work differently where the lease or insurance policy contains an agreed waiver of recovery rights.
Businesses should therefore avoid assuming that damage is automatically the landlord’s problem simply because the landlord owns and insures the property.
It’s also worth remembering that building insurance and public liability insurance serve different purposes.
Building insurance generally protects insured physical property against specified risks, while public liability insurance addresses certain legal liabilities to third parties.
Both may have a role when rented premises are damaged.
What About Damage to Fixtures, Fittings and Improvements?
Commercial premises often contain a mixture of property owned by the landlord and items installed by the tenant.
For example, a retail shop might include landlord-owned walls, flooring and electrical systems alongside shelving, display units and a customised shop fit-out installed by the business.
The insurance arrangements for these items can differ considerably.
If a business damages a landlord-owned fitting, public liability insurance might respond if the business is legally liable and the policy provides the relevant cover.
But if the business damages its own equipment or fit-out, public liability insurance generally won’t cover that loss.
Separate business contents, property or fit-out insurance may be needed.
There can also be uncertainty over who owns particular improvements, especially where fittings become part of the building or ownership is addressed in the lease.
This is one reason why documenting ownership and insurance responsibilities before moving into commercial premises is worthwhile.
When Is Damage to Rented Premises Unlikely to Be Covered?
Even where a policy includes some protection for rented premises, there are circumstances where public liability insurance may not respond.
Common areas to watch include:
- General wear and tear: Gradual deterioration from ordinary use, such as worn flooring or ageing fixtures, is not generally covered by public liability insurance.
- Intentional damage: Deliberately damaging property is typically excluded.
- Your own property: Damage to business-owned furniture, stock and equipment generally requires property insurance rather than public liability cover.
- Contractual obligations: Some leases make tenants responsible for costs beyond what they would otherwise be legally liable to pay. Public liability policies may exclude additional liability accepted solely under a contract.
- Faulty workmanship: The cost of correcting defective work is commonly excluded, although resulting damage to other property may be treated differently.
- Maintenance and make-good costs: Obligations to repaint, restore or refurbish premises at the end of a lease generally aren’t covered simply because the tenant has public liability insurance.
The exact exclusions and any exceptions vary between policies.
Why Your Commercial Lease Matters
Insurance is only one part of the picture.
When a business signs a commercial lease, it accepts various responsibilities relating to the premises. These might include maintaining certain areas, repairing damage, keeping particular insurance policies in place and returning the property in an agreed condition.
Some leases also include indemnity clauses requiring the tenant to compensate the landlord for specified losses.
This can become complicated when the lease creates obligations that go beyond the business’s ordinary legal liability.
For example, a lease might require the tenant to accept responsibility for certain damage regardless of negligence. However, the tenant’s public liability insurance may only respond where liability exists independently of that contractual promise.
The business could therefore have a financial obligation under the lease without having corresponding insurance protection.
Before signing a commercial lease, it’s sensible to have the insurance clauses reviewed and confirm that the required cover is actually available.
What Insurance Should Businesses Consider When Renting Premises?
Public liability insurance is an important consideration for businesses operating from rented commercial properties, but it may not be enough on its own.
Depending on the business and the lease arrangements, additional insurance could include property and contents insurance for business-owned assets, glass insurance for shopfronts and windows, and business interruption insurance for certain insured events that disrupt trading.
Businesses undertaking renovations or significant fit-out work may also need to consider contract works insurance or other cover appropriate to the project.
For businesses hiring venues or using temporary spaces, it’s worth checking whether the public liability policy extends to those activities and locations.
An insurance broker can help identify where existing policies provide protection and where additional cover may be required.
What Should You Check Before Renting Commercial Premises?
Before signing a lease or renewing your insurance, consider asking a few practical questions.
Does your public liability policy cover damage to premises that you rent or lease? Are landlord-owned fixtures and fittings included? Do any care, custody and control exclusions apply? And does your policy respond to the responsibilities you’ve agreed to under the lease?
It’s also worth confirming who is responsible for insuring the building, your fit-out and any shared areas.
Getting these answers in writing can help avoid misunderstandings if an accident occurs.
Final Thoughts
Damage to rented premises can create an unexpected financial burden for a business, particularly when repair costs are substantial or the landlord seeks compensation.
Public liability insurance may provide protection in some circumstances, but the existence and extent of that protection depends on the policy wording, the cause of the damage and the business’s legal responsibilities.
The safest approach is not to assume that either the landlord’s building insurance or your business’s public liability insurance will automatically cover every incident.
Instead, understand the obligations in your lease, check the relevant policy exclusions and make sure your insurance arrangements reflect the actual risks of occupying the property.
Disclaimer: This article provides general information about business insurance in Australia and does not constitute legal or financial product advice. Insurance cover depends on the insurer, policy wording, exclusions, endorsements and individual circumstances. Businesses should seek advice from an appropriately qualified insurance professional and review their lease obligations before making insurance decisions.
