Office space, and the other risks within the same building
Offices, banks and consulting rooms generally create a lower fire risk than many other commercial activities. They can still hold significant numbers of people, so their escape and evacuation arrangements need to match the building's actual use.
Very few office buildings contain only offices. Basement parking, plant rooms, a ground-floor coffee shop or restaurant, retail units and records storage all create different risks. Describe each of these areas separately, including what is stored and how the space is used.
For an office landlord this is not an academic point. Parking basements and ground-floor food outlets are often the higher-risk parts of an otherwise straightforward office building, and they are frequently omitted from the information given to insurers.
Source: National Building Regulations and Building Standards Act 103 of 1977, regulation A20 and Table 1, read with regulation A21 and Table 2 (design population).
Who owns the fit-out, and who is insuring it
The most common gap in an office programme is not a peril. It is a layer of the building that both parties assume the other has covered. A commercial lease typically leaves the landlord insuring the structure and the landlord's finishes, and the tenant insuring its own contents and installations, but the boundary between the two is drawn in the lease and it is drawn differently every time.
Partitioning, ceilings, floor coverings, air conditioning added for a tenant's server room, additional distribution boards, data and fibre cabling, access control and specialist lighting are all installed by tenants and all become part of the building in most circumstances. If the landlord's sum insured was set on the base building and the tenant's policy covers only removable contents, the fit-out sits between two policies and is covered by neither.
The reinstatement obligation compounds it. Where the lease requires the tenant to hand back the premises in their original condition, a tenant whose installations are destroyed may still carry a contractual obligation to strip out and reinstate. That is an insurable exposure, but only if someone has identified it before the loss rather than after.
Loss of rental income: reinstatement time is not the same as re-letting time
Loss of rental income cover responds to the rent that stops while a building is unusable. The sum insured is built from the gross annual rental, and the indemnity period is the maximum time for which the cover will respond. Both are routinely set too low, and the indemnity period is the more expensive of the two mistakes.
A realistic period has to absorb the whole sequence: making the site safe, demolition, professional redesign where the building cannot lawfully be rebuilt as it stood, municipal plan approval, procurement and construction lead times, the occupation certificate, and only then the marketing and letting period needed to return the building to its previous occupancy level. In a soft office letting market that final stage can be longer than the construction itself.
Tenants who found alternative premises during the repair have signed leases elsewhere, frequently for three or five years. The building may be physically ready and commercially empty. An indemnity period that ends at practical completion leaves the landlord carrying exactly the part of the loss that takes longest to recover.
Read our business interruption insurance guide →
Standby power, solar and the services the building sells
An office building competes on the services it provides, and load-shedding has made standby generation, uninterruptible power supplies, solar photovoltaic arrays and battery storage close to standard in the South African office market. Each of them adds replacement value that a structure-based sum insured does not contain, and each of them alters the electrical installation.
The Electrical Installation Regulations require the user or lessor of an electrical installation to hold a valid certificate of compliance issued by a registered person following inspection and testing. The certificate speaks to the installation as it stood on the date of inspection, so every addition or alteration - a new distribution board, a generator changeover, a photovoltaic installation, a tenant's additional supply - requires a certificate covering that work.
Roof-mounted solar brings a structural question alongside the electrical one, since the roof was designed for a load that did not include the array. Battery storage brings a fire risk that most office buildings did not previously carry, in a plant room that may not have been designed for it. Both should be disclosed to insurers rather than treated as maintenance, because an undisclosed installation is a disclosure issue before it is ever a compliance one.
Source: Electrical Installation Regulations, 2009, made under the Occupational Health and Safety Act 85 of 1993, read with SANS 10142-1 (the wiring of premises).
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Liability in common areas, parking and the building's public interface
An office landlord carries a continuing liability exposure to tenants, their staff, visitors, contractors and the public arising from lifts, escalators, stairwells, lobbies, walkways, parking areas and the general condition of the common property. The exposure is separate from the property damage risk and continues whether or not the building is ever damaged.
It sits alongside statutory duties rather than replacing them. The Occupational Health and Safety Act imposes a general duty in respect of persons other than employees who may be affected by the undertaking, and the building regulations place safety and compliance obligations on the owner or the person in control of the building. A slip in a lobby, a lift entrapment, a falling ceiling tile and a failed balustrade are liability claims and compliance questions at the same time, and the facts behind one usually surface the other.
Managing agents are frequently named in the same claim as the landlord, which makes the insured parties under the liability section worth reading rather than assuming.
Source: Occupational Health and Safety Act 85 of 1993, sections 8 and 9; National Building Regulations and Building Standards Act 103 of 1977.
Read our public liability insurance guide →
Sasria cover on both the building and the rental income
Riot, strike, public disorder, civil commotion and connected malicious damage are excluded from standard commercial property and business interruption policies. Sasria SOC Ltd, the state-owned special risk insurer, is the only insurer permitted to write this cover in South Africa, and it attaches to an existing policy as a coupon rather than standing alone.
Office buildings in and near central business districts and along protest routes carry a real version of this exposure, and it is not limited to a building that was itself a target. The two recurring failures are a Sasria sum insured that does not mirror the main policy, leaving the building partly covered for an event it is fully covered for under fire, and the absence of a Sasria business interruption coupon, which leaves the rental income uninsured for exactly the class of event most likely to make a building unusable for an extended period.
Source: Insurance Act 18 of 2017; Sasria SOC Ltd, the state-owned special risk insurer for South Africa (FSP licence 39117).
COMMON QUESTIONS
Office building insurance questions, answered clearly.
Is an office building one type of risk?
Rarely. An office property may also contain basement parking, plant rooms, a restaurant, retail units and storage. Each area should be described according to its actual use because it can create a different fire, safety or liability exposure.
Who insures the tenant's fit-out?
It depends on the lease, and it is the most common gap in an office programme. Partitioning, ceilings, floor coverings, added air conditioning, distribution boards and cabling usually become part of the building, so if the landlord's sum insured was set on the base building and the tenant insures only removable contents, that layer can fall between the two policies.
How long should the indemnity period be on an office building?
Long enough to cover making safe, demolition, redesign, plan approval, construction, the occupation certificate and then the marketing and letting period required to return the building to its previous occupancy. In a soft letting market the re-letting stage can exceed the construction period.
Why is the building re-let period part of the insurance question?
Because tenants who relocated during the repair have signed leases elsewhere, often for three or five years. A building can be physically ready and commercially empty, and an indemnity period that ends at practical completion leaves the landlord carrying the slowest part of the recovery.
Do we need to tell insurers about a solar installation?
Yes. A photovoltaic installation adds replacement value, alters the electrical installation, adds load to a roof designed without it and, where batteries are involved, introduces a fire risk the building did not previously carry. It requires an electrical certificate of compliance covering that work and should be disclosed rather than treated as maintenance.
Does the landlord's liability cover extend to the managing agent?
Only if the policy says so. Managing agents are frequently named alongside the landlord in a claim arising from the common areas, which makes the insured parties under the liability section worth confirming rather than assuming.
Can the insurance premium be recovered through the service charge?
That is a question of what the leases permit rather than of the policy. Most commercial leases allow recovery of the building insurance premium as an operating cost, but the recovery mechanism and any cap on increases are set out in each lease.
Is a vacant office building still insured?
Vacancy is usually subject to a policy condition, often requiring notification after a stated period and sometimes restricting cover to a narrower set of perils. Rising vacancy in a partly let building should be disclosed rather than discovered at claim stage.
Does Sasria cover lost rent after a riot?
Only where a Sasria business interruption coupon has been arranged alongside the material damage coupon. Sasria business interruption cover attaches to, and depends on, the underlying business interruption section, so a material damage coupon on its own leaves the rental income uninsured.
What happens if part of the building is converted to another use?
Converting offices to residential, retail or storage use changes the building's risk. Confirm that the building is approved and suitable for the new activity, then tell the insurer before the conversion takes place. The existing policy may have been arranged for a different use.
