Factory Insurance for Landlords and Tenants in Malaysia: Who Insures What in a Factory Lease

Key Takeaways

• The usual split: the landlord insures the building; the tenant insures its own machinery, stock, renovation and office contents. The landlord's policy does not cover the tenant's goods.
• The tenancy agreement decides, not custom. Many factory leases make the tenant reimburse the building premium or insure the building itself. Read the clause before you sign.
• Both sides need public liability cover for injury or damage to third parties, and the tenant should carry its own because it controls the site day to day.
• A tenant-caused fire can come back to the tenant. The landlord's insurer pays the landlord and may then pursue whoever caused the loss, unless the lease and policy deal with it.
• Tell the insurer when the tenant or the trade changes. The building premium is priced on what happens inside.

Most disputes we see after a fire or flood in a rented factory are not about the insurer refusing. They are about each side having assumed the other was covered. This guide sets out the usual split between landlord and tenant, what to write in the lease, and the cases that go wrong. It is general information, not legal or insurance advice; your tenancy agreement and policy wordings decide.

Who insures what in a rented factory?

Lulu Loke's Q&A covers the short version: the landlord's policy covers the building, not the tenant's belongings, and if you let a property out, tell the insurer it is let because use affects the terms. For the tenant side in a factory, see also "I rent my factory: what should I insure?".

What should the lease say about insurance?

Our Malaysia tenancy agreement template guide lists the clauses a factory lease adds to a standard rent agreement. On insurance, the clause should state:

1. Who insures the building, to what basis (rebuilding cost) and against which perils, including flood if the area has a history.
2. Who pays the building premium. Some landlords recover it from the tenant as part of outgoings; others build it into rent. Either works if written down.
3. The tenant's own policies, with minimum public liability cover, and a duty to show the landlord a copy each year.
4. The tenant's trade and a duty to notify before any change of process, new flammable materials or higher racking.
5. What happens after damage: rent abatement while the factory cannot be used, the right to end the lease if it is not reinstated within a set time, and who pays to reinstate the tenant's fit-out.
6. Waiver of subrogation or joint names, if the parties agree, so the landlord's insurer does not pursue the tenant for an accidental fire (see below).

The lease says the tenant must insure the building. How?

Some leases, especially long leases of detached factories, require the tenant to insure the landlord's building. In that case:

• Insure the building at rebuilding cost, not the rent or the price.
• Put the policy in joint names of landlord and tenant, or note the landlord's interest, as the lease requires. If the landlord's bank holds a charge, it may need to be loss payee.
• Send the landlord the policy schedule and renewal receipt each year.

A tenant's fire spreads. Who pays?

Three different losses:

• The landlord's building. The landlord's insurer pays the landlord. Having paid, the insurer can step into the landlord's shoes and claim against whoever negligently caused the fire (subrogation). That is why tenants want a waiver of subrogation, or to be named on the building policy.
• The tenant's own goods. Paid only by the tenant's own policy.
• The factory next door. If the fire spread because of negligence, the neighbour or its insurer may claim against the party responsible. That is a third-party liability claim, which is what public liability cover is for (public liability).

The roof leaks and damages the tenant's stock. Whose insurance pays?

It depends on the cause and the lease. Slow leaks and wear and tear are generally excluded from fire policies. Sudden bursting or overflowing of tanks and pipes is covered only with that extension (burst pipes and leaks). Who must repair the roof is a lease question: most factory leases put structural repairs on the landlord and internal upkeep on the tenant. If the landlord was told of the leak and did not fix it, the tenant's claim may be against the landlord rather than an insurer. Write repair duties and reporting deadlines into the lease, and keep photos and messages.

Does the tenant's trade affect the landlord's premium?

Yes. Insurers price a factory on its construction, the process inside and the materials stored. A tenant who switches from dry warehousing to solvent-based production changes the risk on the landlord's building. An undeclared change can lead to a disputed claim on the building policy. Landlords should:

• Name the permitted use in the lease and ban changes without written consent.
• Tell the insurer when a new tenant moves in or the trade changes.
• Ask the tenant for its process description and fire certificate status. Our fire certificate guide explains which factories and warehouses need one.

If a tenant stops paying, our guide to the writ of distress explains how landlords recover unpaid rent.

Avoiding gaps and double cover

Employees, workers' hostels and vehicles

These follow the employer, not the landlord. Staff are covered by PERKESO, foreign workers have their own mandatory requirements, and lorries and forklifts on public roads need motor cover. If the tenant houses workers on site, the hostel must also meet the rules in our Act 446 worker hostel guide. For the insurance side, Lulu's foreign worker insurance Q&A and lorry insurance page are a useful start.

Who to ask

FactoryHub handles the lease, not the policy. For a quote on landlord or tenant cover for a factory, you can contact Lulu Loke (Great Eastern agent, Klang Valley) or your own insurer. For the main fire policy questions, read our factory fire insurance guide.

FAQ

Does the landlord's fire insurance cover the tenant's machinery and stock?

No. The landlord's policy covers the building and any landlord's fixtures listed. The tenant must insure its own machinery, stock, renovation and contents.

Does a factory tenant need its own fire insurance?

Yes, for its machinery, stock and fit-out, plus public liability. Many leases also require the tenant to show proof of cover each year.

Who pays the building insurance in a factory lease?

Whoever the lease says. The landlord usually insures the building, and some leases recover the premium from the tenant. Long leases sometimes make the tenant insure the building in joint names.

If my tenant causes a fire, who pays?

The landlord's insurer pays for the building and may then claim against a tenant who caused it negligently, unless subrogation is waived. The tenant's own policy pays for its goods. Damage to neighbours is a liability claim.

Should I tell the insurer when I change tenant?

Yes. The building premium depends on the process and materials inside. Tell the insurer when a new tenant moves in or the trade changes.

The roof leak damaged my stock. Can I claim?

Slow leaks and wear and tear are usually excluded. Sudden burst or overflowing pipes and tanks need that extension. If the landlord failed to repair a reported leak, the claim may be against the landlord under the lease.

What insurance clause should a factory lease have?

Who insures the building and on what basis, who pays the premium, the tenant's own policies and minimum liability cover, the permitted trade and duty to notify, rent abatement after damage and any waiver of subrogation.

Buying or renting, talk to us

FactoryHub is the industrial-only platform of Peter Tan (REN 12771) and Jason Low (PEA 1478), registered with BOVAEP under CID Realtors Sdn Bhd E(1) 1855. We handle both rent and sale, and we co-broke across the whole market, so if the right unit is another agent's listing we will still put it in front of you.

Send us the numbers that decide the shortlist: required amps, built-up area, floor loading, preferred area and target date. We reply with what actually exists, including units that are not advertised publicly. For 800A to 4,000A+ requirements, see high-power factories in Selangor.