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Understanding commercial property risk

By Simon Hoejmark
Portfolio Manager
  • Commercial buildings often have many stakeholders involved in their management, so it’s important each stakeholder understands their responsibilities, particularly if there has been or will be a change to the building’s design or use
  • Safety is everyone’s responsibility, so public liability exposures need to be considered by both the building owner, tenants and their representatives
  • Unoccupied buildings can be more vulnerable to damage and liability exposure and require a specific or tailored risk management strategy.


A commercial building typically presents several risks – and there are a number of stakeholders to factor in, too. From the building owner to building managers and tenants, not to mention subtenants, there may be a number of parties with a vested interest in the building’s risk management.

Safety is everyone’s responsibility, so public liability exposures need to be considered by both the building owner, tenants and their representative. Unoccupied buildings can be more vulnerable to damage and liability exposure and require a specific or tailored risk management strategy.

Understanding where the property owner’s responsibility lies in a commercial building.

The risk management requirements for a commercial building depends on several factors, including the building type and layout, occupancy, and whether the premises are owner-occupied or leased. It can become more complex for the property owner when there are additional stakeholders, such as tenants and subtenants, and their contractors. Understanding each stakeholder’s responsibilities is paramount in ensuring each risk is appropriately managed.

A commercial property owner’s responsibilities are varied and extend to various aspects of a building, including common and publicly-accessible areas. Additionally, shared services and equipment that is used by various tenants are also the responsibility of the property owner. In commercial buildings, the property owner’s risk also extends to the building’s design and operational requirements, for example, ventilation systems and fire safety systems that service multiple tenants. Where these responsibilities are delegated to tenants or their subtenants without adequate property owner oversight, issues often arise, particularly in relation to building and equipment maintenance.

There may also be building-specific design requirements that need constant maintenance and monitoring which are the responsibility of the property owner – for example, performance-based fire solutions that are critical to safety. Minor changes made by a tenant or their contactor without an understanding of the overall requirements can result in non-compliance of the building or essential system, which could have a disastrous outcome.

Even though a tenant may have agreed to maintain certain aspects of essential services, this doesn’t remove the property owner’s responsibility to ensure it’s maintained to an adequate level. Tenant selection and monitoring is a key component for property owners to manage their risk exposure, says Craig Rogers, Manager of Risk Engineering at QBE.

“We often see issues arising from occupancy activities not aligning with the original building or fire protection design,” says Rogers, “so it’s important the property owner is aware of the building’s design requirements, and ensures this information is clearly communicated to the tenants. If changes are required, they should be assessed and approved by a certified practitioner”.

Managing property owner public liability risk

When it comes to public liability, there’s a whole host of issues that may arise, dependent on the occupancy. In the common areas, these are usually the property manager or owner’s responsibility.

In a shopping centre, for example, there are many slip, trip and fall risks that need to be minimised, says Manchu Mahalingam, Senior Risk Engineer at QBE.

“If there is the potential for slippery or wet surfaces, for example, you should be conducting slip testing on an annual basis,” says Mahalingam.

“Then there’s public access provision, making sure fire escapes or egress routes aren’t kept locked or blocked off, because that could cause a potential liability issue.”

Insufficient stair treads or insufficient lighting could also result in a liability incident, as could – for example – chairs being placed too close to balconies or balustrades.

“Children may stand on those chairs and potentially jump off a balustrade,” says Mahalingam.

“Given these risks are within common areas, they are potentially property owner or building management issues, and won’t always fall on the tenant.”

Unoccupied buildings – an increased threat

Over the past year or so, an increasing number of buildings are either temporarily or indefinitely unoccupied. This leads to an array of potential risks for property owners, in addition to the disruption to income.

“Unoccupied buildings need to be effectively managed, and where they aren’t, they can be subject to property damage and liability claims,” says Rogers.

One of the key risks related to an unoccupied building is liability exposure. It doesn’t matter whether someone’s been invited into a property or is trespassing, the owner and tenant are responsible in ensuring the overall safety of the site. “Fire safety is of particular concern,” says Rogers, “so ensuring appropriate exit points are maintained is paramount.”

If there is a lack of security or monitoring of an unoccupied building and its equipment, issues can arise including malicious damage, burglary, theft and equipment neglect. If there is ongoing monitoring, issues can be identified early and potentially prevented. An unoccupied building is at a significantly greater risk to property damage, so it’s important that property owners take the necessary steps to minimise those risks, particularly during those spells of vacancy.

“It’s important to review security arrangements before a building becomes unoccupied,” says Rogers. “Reducing the opportunity for trespassers and quickly identifying unauthorised access can reduce the risk of property damage and a liability claim, should someone get injured.”

By ensuring the property is secure, maintained and regularly inspected, despite being empty, a property owner can reduce any potential risks.

In summary

Property damage and liability exposure is not selective, and if not effectively managed, can lead to financial and reputational damage for both the property owner and tenant. It is important each stakeholder clearly understands their responsibility in maintaining the building. Property damage and liability exposures in commercial buildings vary, therefore it is vital to have effective processes to identify and manage risks, and for your customers to have a robust commercial property insurance policy in place.

QBE has experts who understand the risks your customers might face, talk to us to help you protect your customer’s commercial property, or take advantage of a training session tailored to your customers’ needs.

Learn more about QBE Commercial Property Insurance.

The advice in this article is general in nature and has been prepared without taking into account your objectives, financial situation or needs. You must decide whether or not it is appropriate, in light of your own circumstances, to act on this advice.