Why Insurers Imposes Strict Requirements for Woodworking Tenants
If you’ve recently leased your commercial property to a tenant who works in woodworking—manufacturing items like trellis gates or fence components—you may have received a surprisingly long list of insurance requirements from your current insurer. This isn’t uncommon, and there’s a specific reason behind it.
Woodworking activities present significantly higher fire risks than many other commercial operations. The combination of combustible materials, dust production, and equipment that generates heat creates conditions that insurance companies view as high-risk.
The large NZ insurers, in particular, are known in the industry as “one of the sticklers” when it comes to woodworking operations. They typically impose more stringent requirements compared to other insurance providers in the New Zealand market.
Common Fire Safety Requirements for Woodworking Operations
Based on actual policy wordings, these are the typical requirements you might face when insuring a property with a woodworking tenant:
1. Heat and Smoke Detection Systems
All buildings must maintain operational heat and smoke detection equipment. These systems need to be:
- Properly installed according to New Zealand standards
- Regularly maintained and tested
- Connected to appropriate response protocols
2. Electrical Safety Inspections
Insurers typically requires that “electrical supplies are checked by a registered electrician on a maximum three-year rolling basis.” For properties with woodworking operations, they may require more frequent inspections, potentially annually.
3. Fire Protection Equipment
The premises must have suitable fire protection equipment, including:
- Fire extinguishers appropriate for woodworking environments (typically Class A for wood and Class C for electrical)
- Fire hoses or reels positioned near high-risk areas
- Clear signage and access to all fire-fighting equipment
4. Hot Work Precautions
If the woodworking operation involves any “hot work” (welding, grinding, or other heat-generating activities), additional precautions are required:
- Clearing combustible materials for a safe distance around work areas
- Installing appropriate protective equipment
- Having suitable fire extinguishers immediately available
Your Responsibilities as a Commercial Property Owner
As the property owner, even though you’re not operating the woodworking business, you bear significant responsibility for ensuring compliance with insurance requirements:
Communication with Tenants
Policy wordings specifically state that “if the Insured is a landlord of a Building, the Insured must advise the tenants when they are required to comply with any applicable Policy Conditions or Warranties.” This means you have a legal obligation to clearly communicate all insurance requirements to your tenant.
Ongoing Compliance Checks
You should establish a system for verifying that your tenant maintains compliance with all required safety measures. Consider:
- Regular documented inspections
- Including compliance requirements in your lease agreement
- Setting up a schedule for equipment testing and maintenance
Options When Facing Strict Requirements
Negotiate with Your Current Insurer
If NZI’s requirements seem excessive, you can attempt to negotiate based on specific safety measures you’re willing to implement. Providing detailed information about your tenant’s actual operations and existing safety protocols may help.
Explore Alternative Insurance Providers
As suggested by the broker’s comment that large insurers are “sticklers,” other insurance providers may offer more flexible terms for properties with woodworking tenants. Consider requesting quotes from multiple insurers to compare requirements and premiums.
Implement Risk Mitigation Strategies
Working with your tenant to implement comprehensive fire safety measures can not only satisfy insurance requirements but potentially reduce premiums. Consider:
- Installing monitored fire alarm systems
- Implementing dust collection systems to reduce combustible material buildup
- Creating designated areas for higher-risk activities
- Documenting regular safety training for all workers on the premises
Legal Implications of Non-Compliance
Failing to meet the insurance requirements can have serious consequences, including:
- Potential voiding of your insurance coverage in case of an incident
- Breach of statutory obligations under the Health and Safety at Work Act 2015
- Liability issues if damages occur due to inadequate safety measures
Insurance policies typically require that you “comply with all statutory regulatory or local authority requirements pertaining to the ownership occupation and use of the Insured Property.”
Document Everything
Whatever approach you take, thorough documentation is crucial. Keep records of:
- All communications with your insurer regarding requirements
- Safety inspections and implementations
- Maintenance schedules and completion records
- Communications with your tenant about safety requirements
This documentation will be invaluable if claims arise or if you need to demonstrate compliance to negotiate better terms.
Final Considerations for Commercial Landlords
When leasing commercial property to woodworking operations, factor in these additional insurance requirements during your lease negotiations. The costs of implementing required safety measures should be clearly addressed in your agreement, as they represent a significant aspect of the property’s operational expenses.
By understanding insurance company’s stringent approachs to woodworking operations and proactively addressing these requirements, you can protect your investment while maintaining a positive relationship with both your tenant and your insurer.