Commercial Lease Law

Landlord Insurance Obligations in Commercial Leases UK Guide

Q: What is the landlord's insurance obligation in an FRI commercial lease?

In an FRI commercial lease, the landlord covenants to insure the building to its full reinstatement value against the insured risks listed in the lease schedule. The cost is recharged to the tenant as a service charge. The landlord must use the proceeds of any claim to reinstate the building if it is damaged or destroyed by an insured risk.

Q: What is an uninsured risk in a commercial lease?

An uninsured risk is one not listed in the lease's insured risks schedule, or specifically excluded from cover by the insurer. If the building is damaged by an uninsured risk, the landlord typically has no obligation to reinstate and the rent continues to run without any cesser. Tenants should negotiate a specific uninsured risk break clause to protect their position.

Q: What is rent cesser in a commercial lease?

A rent cesser clause suspends the tenant's obligation to pay rent (and usually service charge) if the premises are damaged or destroyed by an insured risk and the tenant cannot use them. The suspension runs until the premises are reinstated, up to the reinstatement period stated in the insurance policy (typically 2–3 years). Rent cesser does not automatically apply to damage caused by uninsured risks.

In a full repairing and insuring (FRI) commercial lease, the landlord covenants to keep the building insured against 'insured risks' (defined in the lease schedule) to its full reinstatement value; recharges the premium to the tenant as a service charge; and uses insurance proceeds to reinstate the premises if damaged. Key provisions: insured risks schedule (fire, flood, storm, explosion, malicious damage, aircraft, riot, etc.); uninsured risks (not on schedule or excluded by insurer — no automatic rent cesser; landlord generally no obligation to reinstate); terrorism (typically excluded from standard commercial policies; Pool Re-backed cover available; many institutional leases require landlord to maintain terrorism insurance); flood (Flood Re covers residential only; commercial landlords in high-risk areas need specialist insurance). Reinstatement value: full rebuild cost (demolition + rebuild + professional fees + VAT where applicable) — NOT market value; underinsurance risk (average clause reduces claim proportionately); Reinstatement Cost Assessment (RCA) by RICS surveyor every 3 years. Rent cesser: if premises damaged by insured risk and tenant cannot use them, rent/service charge suspended until reinstated (up to the reinstatement period in policy — typically 2–3 years); no automatic rent cesser for uninsured risk damage — tenant must negotiate uninsured risk break clause. Landlord's obligation to reinstate: must use insurance proceeds to rebuild within a reasonable time; failure = breach of covenant; tenant may determine lease if reinstatement period expires. Landlord's default: if insurer refuses to pay (policy condition breach), landlord may still be obliged to reinstate at own cost — major risk; comply with all policy conditions. Scotland: broadly similar principles but specific Scots law differences.

10 min readUpdated 7 June 2026Last reviewed: 17 May 2026insurance-lease-obligationfri-lease-insuranceinsured-risksuninsured-risk

Landlord's Covenant to Insure and Reinstatement Value

FRI lease: landlord covenants to insure the building to its full reinstatement value against the insured risks defined in the lease schedule. Insured risks typically: fire; lightning; explosion; earthquake; storm; flood; subsidence; burst pipes; malicious damage; aircraft; riot. Insured sum: full cost of demolition, clearance, and rebuild to same specification — NOT market value; include professional fees, planning costs, applicable VAT. Underinsurance risk: if insured sum < full reinstatement cost, the insurer can invoke the average clause and pay only a proportionate share of any claim. Reinstatement Cost Assessment (RCA): RICS-qualified building surveyor assessment every 3 years to keep insured sum accurate. Landlord's default: tenant may insure and deduct premium from rent (check lease drafting for this right); landlord also liable in damages.

Uninsured Risks, Rent Cesser and Obligation to Reinstate

Uninsured risks: risks not listed in the schedule or excluded by the insurer; terrorism commonly excluded from standard policies (Pool Re cover available); flood in high-risk areas (commercial property excluded from Flood Re). Where premises damaged by uninsured risk: landlord typically no obligation to reinstate; rent continues to run (no automatic rent cesser); tenant should negotiate uninsured risk break clause allowing either party to determine lease after specified period (typically 2–3 years). Rent cesser on insured risk damage: rent (and usually service charge) suspended while premises cannot be used by reason of insured risk damage; duration capped at reinstatement period in policy (typically 2–3 years). Landlord's obligation to reinstate: must use insurance proceeds to rebuild within a reasonable time; if insurer refuses to pay (e.g., policy condition breach), landlord may still be obliged to rebuild at own cost — comply with all policy conditions and report losses promptly.

Frequently asked questions

What is the landlord's insurance obligation in an FRI commercial lease?+

In an FRI commercial lease, the landlord covenants to insure the building to its full reinstatement value against the insured risks listed in the lease schedule. The cost is recharged to the tenant as a service charge. The landlord must use the proceeds of any claim to reinstate the building if it is damaged or destroyed by an insured risk.

What is an uninsured risk in a commercial lease?+

An uninsured risk is one not listed in the lease's insured risks schedule, or specifically excluded from cover by the insurer. If the building is damaged by an uninsured risk, the landlord typically has no obligation to reinstate and the rent continues to run without any cesser. Tenants should negotiate a specific uninsured risk break clause to protect their position.

What is rent cesser in a commercial lease?+

A rent cesser clause suspends the tenant's obligation to pay rent (and usually service charge) if the premises are damaged or destroyed by an insured risk and the tenant cannot use them. The suspension runs until the premises are reinstated, up to the reinstatement period stated in the insurance policy (typically 2–3 years). Rent cesser does not automatically apply to damage caused by uninsured risks.

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