Commercial property insurance is a critical part of protecting your asset — but it’s not a “set and forget” process. The type of tenant you lease to can significantly influence your property’s risk profile, and in turn, affect the cost and conditions of your insurance cover. For landlords, especially those leasing to non-standard or higher-risk industries, being aware of these implications isn’t optional — it’s essential.
In this article, we’ll explore elements of what makes a tenant high-risk from an insurance perspective, how it can impact your coverage, and what steps you can take to protect both your investment and your peace of mind.
What Makes an Industry “High Risk”?
Insurers assess risk based on the nature of activities carried out at the premises. While all businesses carry some degree of risk, certain industries trigger heightened concern due to fire hazards, public liability exposure, security issues, or regulatory scrutiny. These are often labelled “high-risk” by underwriters.
Some common examples of high-risk tenant types include:
Tobacconists – Often flagged due to the high value and theft-attractiveness of stock, plus increased fire risk and regulatory controls around tobacco handling and sales.
Tattoo studios – Considered high-risk due to public liability exposure (e.g., hygiene concerns, injury claims) and often linked with perceived reputational risks for insurers.
Automotive workshops – Use of flammable liquids, heavy machinery, and hazardous chemicals can all contribute to higher premiums or exclusions.
Manufacturing facilities – Especially those involved in plastics, metalwork, or chemical production.
Hospitality venues (like bars and nightclubs) – Risk factors include crowd management, alcohol service, and fire hazards.
Cannabis-related businesses (even legal ones) – Insurers may be cautious due to changing laws, fire/security risk, or difficulties in assessing claims.
This is only a brief list of common high risk industries. You should consult with your experienced insurance broker to ensure you have an understanding of what risk any potential tenant’s business poses for your insurance cover.
If your tenant operates in one of these industries, your insurer will likely assess the property as higher risk — potentially driving up premiums, limiting coverage, or even declining to insure the property altogether.
How High-Risk Tenants Can Affect Your Insurance
Leasing to a high-risk tenant doesn’t just impact them — it directly affects your insurance as the property owner. Here’s how:
Increased premiums – Insurers calculate premiums based on the activity occurring at the property. High-risk operations = higher costs.
Special policy conditions – Your insurer might apply exclusions, require specific fire safety measures, or impose limits on claims related to tenant activity.
Denied claims – If the tenant’s operations weren’t disclosed or don’t match the use declared on the policy, your claim could be denied altogether.
Insurer refusal – Some insurers may decline to cover properties leased to certain industries, leaving landlords scrambling for alternatives or needing to accept higher excesses.
Financing issues – Lenders often require evidence of current, valid insurance. If a property becomes uninsurable or too expensive to cover, financing and valuations can be affected.
The key takeaway: if you’re leasing to a business that falls outside standard retail, office, or low-risk industrial operations, your insurance obligations become more complex — and more important.
Real-World Examples
Consider a landlord who leased a small warehouse to a business that described itself as a “retail distributor.” In reality, the tenant was blending solvents and storing large quantities of flammable materials. When a fire broke out, the insurer declined the claim, arguing that the landlord failed to disclose the true nature of the operations. The result? The landlord was left to cover substantial damages and deal with a voided policy.
Another scenario involves a tattoo parlour leasing a shopfront in a neighbourhood strip. Although the business operated legally and with council approval, the landlord’s insurer later advised they would not renew the policy unless the tenancy changed — citing increased liability concerns and reputational risk. The landlord had to either find a new insurer (at significantly higher cost) or terminate the lease.
How to Protect Your Property as a Landlord
If you’re considering leasing to a high-risk tenant, or already do, there are several proactive steps you can take to protect your property and your insurance coverage:
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- Conduct Thorough Due Diligence
Understand exactly what the tenant’s business does, not just what it’s called. Ask for a detailed business description and, if needed, consult an insurance broker before agreeing to lease terms. - Require Full Disclosure in Writing
The lease should clearly state the intended use of the property. Include a clause requiring the tenant to seek written consent before changing or expanding their business activities. - Ensure the Tenant Has Their Own Insurance
Tenants should hold their own public liability, contents, and business interruption cover. Request certificates of currency, and ensure the landlord is noted as an interested party where appropriate. - Inform Your Insurer of the Tenant’s Activities
Always disclose the tenant’s actual business activities to your insurance provider — even if you’re unsure whether it matters. Transparency is your best defence in the event of a claim. - Inspect Regularly and Document Changes
Perform routine inspections (or ensure your agent is doing this), and note any operational changes or safety concerns. This can be critical in the event of a dispute or claim.
- Conduct Thorough Due Diligence
Lease Structuring and Risk Allocation
Smart lease drafting is a landlord’s first line of defence. Work with your solicitor to ensure:
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- Permitted use clauses tightly define the tenant’s activities.
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- Indemnity and insurance clauses are clear about who covers what.
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- Tenant responsibilities include maintaining safe practices and complying with laws.
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- Landlord rights to request insurance evidence and enforce compliance are embedded.
These provisions not only strengthen your legal position but also demonstrate to insurers that you’re proactively managing risk — which can improve your insurability.
Work with an Experienced Broker
Not all insurers are the same — and neither are brokers. Engaging a broker who specialises in commercial property can make a significant difference in finding the right coverage for high-risk tenancies. A good broker will:
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- Understand the tenant’s risk profile
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- Recommend insurers who are open to niche or complex risks
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- Assist in structuring policies to cover both property and liability exposures
- Help you understand exclusions and conditions before it’s too late
Final Thoughts
Leasing to a high-risk industry doesn’t automatically mean trouble — but it does require care. From tobacconists to tattoo parlours and beyond, the nature of your tenant’s business can change the way insurers view your property.
As a landlord, your best strategy is to be proactive: understand the risks, structure your lease accordingly, and communicate clearly with your insurer. By doing so, you not only protect your investment but also position your property as a professional, well-managed asset — no matter who’s on the lease.
