Commercial Tenant Default Insurance

A new insurance product that protects against tenant insolvency has recently emerged within the Australian insurance industry. This product is offered exclusively through GSA Insurance Brokers, who provide “Commercial Tenant Default Insurance” to protect property owners against the exposure of tenant default and insolvency. The product is currently available for all types of commercial, retail and industrial property and geared towards funds managers or entities with larger property holdings.

The product will provide property owners with a practical way to protect themselves against default and in turn potentially lower risk profiles with lenders. It offers 6 and 12 month options to cover tenant’s rent in a default or insolvency scenario and will be especially favoured where property involves a large single tenant holding or major within a shopping centre. The product has been timed well considering the recent issues faced by property owners with tenants like Dick Smith and Laura Ashley.

There is currently only one other insurance product available that touches on covering property owners for tenant rental loss. “Loss of Rent Cover” is offered via an Industrial Special Risks (ISR) policy designed to protect companies with multiple locations, high asset values and multiple occupation classes. However, it only provides cover for loss of rent where there is property damage and consequential loss and therefore only used in cases where there is material damage, for example unable to access due to a fire or flood.

Tenant Default Insurance is a unique, new and unseen product for the property industry and specifically for property owners. Charles Galayini from GSA Insurance Brokers, describes the Commercial Tenant Default Insurance as “a product that will help provide stability to an asset, assisting to maintain consistent yields and attract investors”.

In a general sense the product should fit within general net lease terms and therefore allow the cost to be recoverable from outgoings, to deliver no cost to owners in a net lease scenario. However, it would also be also be prudent for property managers to ensure allowances are made to cover new lease situations by inserting a term in the Heads of Agreement and/or advising the client’s solicitors.

Going forward, it will be interesting to watch how much this product affects the market and whether similar products continue to arise.

For further information or any questions relating to Commercial Tenant Default Insurance please contact Charles Galayini at GSA Insurance Brokers on 8274 8100 or charlesg@gsaib.com.au

Disclaimer: Preston Rowe Paterson does not accept commission from third parties and are not licenced to provide insurance advice. This blog should not to be interpreted as insurance advice.

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