Who Pays Commercial Property Insurance

 

Who Pays Commercial Property Insurance?

If you own or rent a commercial building, you have probably asked yourself this at some point:

“Who actually pays the commercial property insurance here, me or my landlord?”

Then you read your lease, see phrases like “NNN,” “insurance rent,” or “CAM charges,” and somehow feel even more confused.

At Savon Insurance Brokerage and on savonusa.com, this is a very common conversation. Small business owners want to know if the insurance bill is really their problem. Landlords want to know what they can pass on to tenants. Owners with loans want to know what the lender expects.

The short answer is:

The property owner almost always arranges and legally owns the main commercial property insurance policy.

Who pays for it in the end depends on the lease.
It may be the landlord, the tenant, or shared between them.

On top of that, tenants usually need their own insurance for their business property and liability, even if they are helping pay for the building insurance.

In this guide, we will walk through:

Think of this as a clear, friendly explanation, not a pile of legalese.

 

First Things First: What Is Commercial Property Insurance?

Before we decide who pays, we need to be clear about what we are talking about.

Commercial property insurance is the coverage that protects the physical property itself. That usually includes:

Investopedia describes commercial property insurance as coverage that protects business assets such as buildings and contents. When an insurer sets the price, the primary factor is the value of those assets and what it would cost to replace them.

So when we say “commercial property insurance” in this article, we are mainly talking about the building insurance that protects the structure. Tenants also need:

Those are important, but they are separate policies from the main building insurance.

 

The Basic Legal Idea: Who Has The “Insurable Interest”?

In insurance, only someone with an insurable interest can insure a building. That means you would suffer a direct financial loss if the building is damaged.

For commercial buildings, that is usually:

Multiple sources on commercial building insurance point out that the landlord or property owner is typically responsible for arranging building insurance because they have the insurable interest in the structure.

A tenant does not usually own the building itself, so they do not have a true insurable interest in the full structure. They may have an interest in:

But the building as a whole belongs to the owner. That is why, in most cases:

So the real question is not “who buys the policy” but “who ends up paying the bill for it.”

 

Big Picture: Who Pays Commercial Property Insurance In Practice?

Here is the honest overview:

Specialist guides on commercial leases and building insurance say this plainly. The owner usually arranges the building insurance and often recovers the cost from tenants through the lease, rather than leaving each tenant to insure bits of the building separately.

At the same time, tenants still have their own insurance obligations. Lease guidance and tenant risk articles explain that commercial tenants are usually required to carry liability insurance, contents insurance, and often additional coverages, even when they are contributing to the building insurance cost.

So the real answer to “who pays commercial property insurance” is “it depends on your lease.”

To unpack that, we need to look at the different types of commercial leases.

 

How Lease Type Changes Who Pays: Gross, Net, And Triple Net

Commercial real estate has a handful of classic lease structures. Each one handles property expenses differently, including insurance.

Gross lease: landlord pays the building insurance

In a gross lease, the tenant pays one all inclusive rent, and the landlord pays most of the property expenses, including:

A commercial leasing guide explains that in a typical gross lease, the landlord pays all or most expenses associated with owning and operating the building, such as taxes, insurance and maintenance. The tenant just pays a fixed rent.

In this setup:

You see gross leases more often in:

Single net and double net: costs start to shift to the tenant

Net leases add layers.

These structures are less common than triple net, but the pattern is clear:

Triple net lease (NNN): tenant pays taxes, insurance, and maintenance

In a triple net lease, the tenant takes on a much larger share of the property costs.

Investopedia defines a triple net lease as one where the tenant is responsible for property taxes, building insurance and maintenance costs, in addition to base rent.

More detailed NNN guides explain:

In all of these cases, the tenant is effectively paying the commercial property insurance cost, but the owner keeps control of the building policy to protect their investment.

Full repairing and insuring leases (often used outside the U.S.)

In some countries, you will also see full repairing and insuring (FRI) leases. These are similar in spirit to triple net leases.

Under an FRI lease:

Again, the theme is that the landlord wants to pass as many operating and repair costs as possible to the tenant, while still keeping enough control to protect the building.

 

Owner Occupied Property: When The Business Owns The Building

Sometimes there is no landlord tenant split, because the business owns the building it occupies. In that case, things are straightforward.

Lender guides explain that in commercial loan transactions, lenders typically require borrowers to:

In other words:

Sometimes lenders will collect insurance money as part of an escrow arrangement and pay the insurer directly, but that is still your cost as the owner.

 

Tenant Occupied Property: Who Pays When There Is A Lease?

Now let us look at the more common scenario: a building owner who leases space to one or more tenants.

Single tenant building

In a single tenant building:

In many triple net or FRI style leases, the tenant effectively pays all of the building insurance cost, even though the landlord still manages the policy.

Multi tenant building

In a multi tenant office, retail or industrial complex, it would make no sense for every tenant to try to insure the building separately. So in most cases:

Commercial real estate glossaries and leasing guides call these tenant reimbursements. They explain that tenant reimbursements usually include a proportionate share of property taxes, property insurance, maintenance and other operating expenses.

Your share is often based on the square footage you lease compared to the total rentable area.

For example:

This arrangement gives:

 

What Tenants Pay For Even When They Do Not Pay Building Insurance

Even in a fully gross lease where the landlord pays the property insurance bill, tenants almost never get to ignore insurance entirely.

Most commercial leases require tenants to carry several types of coverage, such as:

Commercial tenant insurance guides explain that landlords commonly require tenants to carry liability coverage and property coverage, sometimes specifying minimum limits, before handing over the keys.

So even if:

The building itself is insured by the owner. The tenant’s business and operations are insured by the tenant.

 

How Commercial Property Insurance Costs Show Up In Your Rent

From a practical point of view, you might never see a line that says “building insurance” on your bank statement. Instead, you see:

Commercial leasing resources describe this as tenant reimbursements or tenant recoveries. Landlords bill tenants for certain property expenses such as taxes, insurance and maintenance, either:

Here is what that looks like in the common lease types.

In a gross lease

Over time, though, the landlord will raise base rent to reflect higher expenses, including premiums.

In a modified gross or “base year” lease

In net and triple net leases

In all cases, commercial property insurance is never really free. The question is just whether you see it as:

 

Where The Lender Fits In: They Care A Lot About Who Pays

Whenever there is a loan on a commercial property, the lender has a strong opinion about insurance.

Guides on lender insurance requirements explain that commercial lenders typically require:

It is usually the borrower, meaning the property owner, who has to:

Even if tenants are reimbursing some or all of the cost, the lender wants to see that the owner is on top of the insurance. The lender does not care how the cost gets split in the lease as long as the property is properly insured.

In some financing arrangements:

So while a lender does not normally “pay” commercial property insurance in the real sense, they can strongly influence:

 

Who Pays The Deductible When There Is A Claim?

Another important piece of the “who pays” puzzle is the deductible.

A deductible is the amount that must be paid out of pocket before the insurance coverage kicks in.

Who pays the deductible in a commercial property claim depends on:

Some leases say:

There is no single universal rule. You have to read the lease and, if needed, negotiate that clause. In larger buildings, landlords often treat the deductible as part of the overall operating costs that are recovered through CAM or NNN charges.

 

Scenarios: How This Works In Real Life

To make all of this less abstract, let us look at a few realistic scenarios.

Scenario 1: Retail shop in a small center

You run a small retail store in a neighborhood strip center.

In this case:

So legally, the landlord is the insured party on the building policy, but economically you are paying part of the cost.

Scenario 2: Owner occupied office condo with a loan

You own an office condo unit that your small business works from.

In this case:

Scenario 3: Multi tenant office building with modified gross leases

You own a mid sized office building with multiple tenants.

Here:

 

What Can You Negotiate About Who Pays?

You cannot negotiate away your lender’s requirements or the basic insurable interest rules, but there are things you can negotiate in your lease.

As a landlord

You can:

If you want more predictable income with fewer surprises, you might favor a net or triple net structure where tenants pay most variable expenses, including insurance. Net lease guides explain that NNN leases shift taxes, insurance and maintenance to tenants, which stabilizes the owner’s net income.

As a tenant

You can often negotiate:

You may not be able to avoid paying your share of property insurance in a triple net lease, but you can ask for transparency and predictability.

 

Tax And Accounting Basics: Very High Level

This is not tax advice, but it helps to understand the general pattern.

The exact tax treatment depends on your entity type and accounting method, so this is one more area where your accountant should be involved. Savon can help you understand how the insurance is structured. Your tax professional can then show you how that structure flows onto your returns.

 

How Savon Insurance Brokerage Can Help Landlords And Tenants

Questions like “who pays commercial property insurance” become easier when you have a broker who understands both sides of the table.

Savon Insurance Brokerage is a virtual, independent insurance brokerage, which means they can:

Here is how that plays out in practice.

For landlords and property owners

Savon can help you:

They can also help you coordinate between:

For tenants and small business owners

Savon can help you:

In short, Savon can be your translator between:

 

Frequently Asked Questions: Who Pays Commercial Property Insurance?

Does the landlord always pay commercial property insurance?

The landlord or property owner almost always arranges and legally owns the main building policy, because they have the insurable interest in the structure.

Whether they also pay for it depends on the lease:

Can a tenant ever buy commercial property insurance on the building?

Tenants usually should not try to insure the entire building themselves, because they do not own it and do not have an insurable interest in its full value. Sources on commercial building insurance note that the landlord, not the tenant, is the appropriate party to insure the building.

Tenants do buy:

Who pays commercial property insurance in a triple net lease?

In a triple net lease, the tenant is usually responsible for paying the property insurance premiums along with property taxes and maintenance, either directly or through reimbursements.

The landlord often still arranges the policy but passes the cost to the tenant.

Who pays commercial property insurance in a gross lease?

In a gross lease, the landlord pays the building insurance and other operating expenses such as taxes and many maintenance costs. The tenant pays a single, often higher, rent amount that covers these expenses indirectly.

Does my lender pay my commercial property insurance?

No. Your lender requires you to maintain commercial property insurance as a condition of your loan. They may hold escrow for premiums and pay the insurer, but those funds come from you, the borrower. Lender guides confirm that it is customary for the borrower or mortgagor to carry insurance for the joint interest of borrower and lender.

Who pays the deductible when there is a claim?

The lease usually decides this. Common approaches include:

You need to read the deductible clause and negotiate it if it is unclear.

 

Final Thoughts: The Policy Belongs To The Owner, But The Cost Is Shared

So, who pays commercial property insurance?

On top of that:

The key is not just to know “who pays,” but to understand:

That is where Savon Insurance Brokerage can be a real partner. By helping you understand your responsibilities and comparing options from multiple insurers, Savon makes it easier to answer that big question in a calm, informed way, rather than finding out only after something has gone wrong.

In the end, commercial property insurance is one of those responsibilities that comes with owning or using a building. You cannot avoid it. But you can understand it, plan for it and share it fairly between the people who depend on that property to do business.

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