Consider insurance risks before entering or renewing a lease

The NSW Small Business Commission has been contacted by tobacconists and property owners indicating challenges obtaining affordable insurance following increased criminal activity related to the sale of illicit tobacco. 

Both tenants and landlords have the potential to be impacted depending on the nature of the building and arrangements under the lease. Parties to a lease can face significant challenges in obtaining and maintaining property and public liability insurance for premises leased to certain types of businesses, particularly tobacconists. 

These challenges appear to have extended beyond the illegal trade and are impacting other businesses that are doing the right thing. 

It appears that some insurers are increasingly unwilling to cover buildings that house tobacconists, and some building owners are forced into costly international policies in circumstances where local insurers withdraw from providing coverage.

For landlords, leasing to high-risk businesses may lead to denied insurance, often with severe financial consequences. In one case reported to the Commission, a landlord of premises leased to a tobacconist saw its property insurance premium increase almost ten-fold. Premium hikes have been compounded by rising claims from tobacconist-related incidents. 

Landlords and tenants are advised to carefully assess the risks before entering leases that could impact insurability. A new licensing scheme and strengthened enforcement has been announced to combat the black-market tobacco trade while the Commission has also raised this issue with insurance industry representatives.

Commercial property owners and tenants with ongoing insurance challenges are encouraged to work together with insurance brokers and professional advisors to help resolve concerns.

“The Commission is available to provide assistance and support constructive conversations between landlords and tenants impacted by escalating insurance costs,” said NSW Small Business Commissioner Chris Lamont.

The Commission offers a mediation service to help resolve leasing disputes and can offer guidance to parties needing assistance with leasing matters.