Commercial Property: The Rebuild Cost

Calculating the rebuild cost of commercial property

For many landlords their commercial property represents their livelihood or at least a significant investment and therefore want to be sure it’s covered to be completely re-built should the absolute worst happen. 

The re-build cost is the amount your buildings insurance covers you to re-build the property, from the ground up. It includes the demolition costs of the old property and debris clearing, architects and planning costs for the new one and of course materials and labour to re-build.

Working out the rebuild cost is one of the most important things you’ll do when setting up commercial property insurance. There are many free online commercial properties rebuild calculators and of course professional services too.

Just be confident you have it right because being under insured can greatly reduce the amount paid out from a claim.

This is because of the Condition of Average.

The condition of average clause states that if you under insure, meaning you give a rebuild cost less than it really is, when you come to make a claim the insurer can reduce the amount paid out by the same percentage you are under-insured.

For example, insuring your property for one hundred thousand pounds when it should be two hundred thousand, and then making a claim for fifty thousand after a bad fire.

The condition of average clause means that because you under-insured by 50% you could end up being able to claim only for twenty-five thousand, which is minus 50% of the difference. 

If your property should become uninhabitable from an insurable event such as a fire, the insurance will pay for the rent you are subsequently unable to collect. The indemnity period is the length of time you can claim for ‘loss of rent’ expenses.

So, how long should the indemnity period be?

Well, twelve, twenty-four or thirty-six months are commonly available, and you should seriously consider what is adequate for your building. The whole process of rebuilding could take years; you may well also be faced with looking for new tenants too by the time it’s finished. One of our advisers can give you more details.

Commercial property insurance from Towergate

We can offer cover for a range of commercial properties from our trusted network of leading insurers.

You can place just one commercial property or a whole portfolio under one policy, including standard and unoccupied residential and mixed-use buildings.

Get a commercial property insurance quote, call us on 0330 828 0512 or request a callback.

Landlords insurance from Towergate

We provide landlord insurance for a wide range of properties and tenants including multi occupancy, students, local authority placements, unoccupied and much more. See our landlord insurance page or call 0333 060 0915 for more.

About the author

Alison Wild BCom (Hons), MAAT, MATT, Taxation Technician is a highly respected industry professional who has been working with and advising SMEs in areas including tax, pensions, insurance and marketing for over 25 years. She is a member of the Association of Accounting Technicians (AAT) and Association of Tax Technicians (ATT) and also has 20 years' experience as a residential landlord.