Business cohabitation red flags

By Jack Durrant – Branch Director, BA (Hons), ACII

If you’re a premises owner considering dual or multiple premises occupancy – more commonly known as business cohabitation – there’s more to think about than simply the names on the tenancy list.  Ask yourself: “Do I fully understand what activities and processes may be undertaken while they’re using that part of the building?” 
 

It’s recommended that you have a very clear idea of why you’d like to go down the business cohabitation route. Is it to create added, guaranteed revenue for your own business, or could it actually create more problems than profit?

There are many different drivers for those owning or operating a business when considering allowing a different operation into an existing premises, for example:

• A hotelier wants a restaurant to inhabit a floor in their hotel to draw in a bigger crowd than simply hotel residents
• A clothing warehouse business has a spare unit and wants a compatible business to lease and occupy a portion of this space
• A restaurant chef or owner is keen to find a new space away from the overcrowding and expense of the high street to somewhere more spacious that’s cheaper to run, perhaps alongside other businesses  
• There are even those surprising opportunities where a venue can transform from something as diverse as a barber/hairdresser by day to a bar at night

On the hotel front, many have attracted top-name restaurants and chefs – especially when an extra part of the pleasure for diners is being on a high enough floor to appreciate a magnificent view while enjoying a Michelin-starred meal. When it’s successful, this is undoubtedly great news for the hotel as well as the restaurant – a quid pro quo that works for all parties and a shining example of successful business cohabitation.

But… and there’s often a ‘but’ when we delve into insurance, these business cohabitation arrangements will affect business insurance and present specific risks which any good insurer will insist are addressed before cover can be agreed. 

Here are some of the issues that a hotel, for example, may want to think about in a business cohabitation scenario:

• It’s likely that a restaurant – especially one located on a high storey – will have a significant demand for water, and could cause issues for escape of water, or water damage to floors below.
• If frying is a regular activity, or there are deep fat fryers on the premises, there could be an increased risk of fire to the building. An appropriate duct work cleaning regime should be established to ensure compliance with TR19 grease regulations. *
• There could be issues with the staff from the hotel or third parties gaining access to the restaurant while it’s closed, causing damage or theft. This is especially true where the continuous open-door nature of a hotel means the restaurant area cannot be fully locked down. This is where risk management steps to reduce theft are essential, along with theft cover being extended to cater for theft via non forceful and/or violent access.
• The restaurant staff may not use correct procedures and alarms to lock down their section of the premises securely, thus allowing third party persons to enter unauthorised parts of the building, or for false alarms to activate causing hotel guests to be evacuated.

There are plenty of additional concerns for both the hotelier and the restaurant owner. They no doubt trust each other and will have contracts and paperwork to reflect this, but this does not necessarily extend to their staff, or to the insurance underwriters who are looking at the case. Having a broker that can ensure all parties work in unison is a necessary measure to avoid future issues.

Larger and more established organisations will usually have excellent risk controls, and therefore underwriters are likely to look kindly upon the circumstances to rate the business competitively, without limiting their cover much if at all. 

However, if you’re looking to enter into a business cohabitation arrangement like this, it’s always worth considering the risks and how to mitigate them:

• Have complete fire separation between buildings
• Create separate access points
• Ensure that fire alarm and security systems are all fully operational 
• Have robust procedures to open up and close down, so the individual businesses remain secure
• Consider the risks of bringing certain businesses together – a business using hot tools trading next to a cotton clothing manufacturer, for example, is extremely high risk in terms of a fire spreading

If you have any cohabitation concerns or questions, an insurance broker like Howden, with a specialist in-house risk management team, can be an excellent touchpoint. They’ll often have first-hand and specific knowledge, having dealt with the pitfalls and challenges of other clients. They can therefore provide expertise on how changes and the presence of an additional business may impact your insurability. Brokers can even ask insurers to quote on the basis that the cohabitation already exists, so that you can implement appropriate risk management measures before you progress.

Whether you’re already operating in a business cohabitation environment, are considering it, or want to know more about this, contact our team today on 0330 008 1334 for further information or a quote. We look forward to talking with you.

* BESA revamps vital ventilation hygiene training (thebesa.com)