Building Owner vs Tenant — Who Is Responsible for Fire Insurance in Malaysia?

Every commercial lease in Malaysia contains a clause about insurance. It tells the landlord to insure the building. It tells the tenant to insure their contents. And in most cases, neither party reads the clause carefully enough to understand what it actually requires.

The problem surfaces after a fire. The building owner discovers that the tenant's renovations aren't covered under the building policy. The tenant discovers that "contents insurance" doesn't include the RM200,000 worth of built-in cabinetry and partitioning they installed. Both sides assumed the other's policy would fill the gap. Neither policy does.

This guide explains the typical fire insurance obligations of building owners and tenants in Malaysia, how the tenant's clause in fire policies works, and the most common coverage gaps that leave both parties exposed after a loss.

What the Building Owner Typically Insures

The building owner's fire insurance responsibility centres on the physical structure and the permanent installations that form part of the building. This is the owner's asset, and protecting it is both a commercial decision and, in many cases, a financing condition.

What the Owner Insures	What This Covers
Building structure	Walls, roof, floors, foundations, staircases, common areas
Fixed installations	Lifts, central air conditioning, plumbing, electrical mains, fire safety systems
External works	Car parks, boundary walls, landscaping (if included in the policy)
Common property (strata buildings)	Lobbies, corridors, shared facilities managed by the management corporation

If the building is financed, the bank or financial institution will almost certainly require the owner to maintain fire insurance as a condition of the loan. The bank's interest is noted on the policy, and the sum insured must meet the financier's requirements. This isn't optional: failure to maintain the policy can trigger a loan default.

The owner's policy covers the building as it was originally constructed (or as subsequently valued). It does not automatically extend to cover modifications, renovations, or fit-outs carried out by tenants. This is the single most important distinction that both parties need to understand.

What the Tenant Typically Insures

The tenant is responsible for insuring everything they bring into or add to the demised premises. The landlord's building policy doesn't cover the tenant's property, and the tenant's lease will usually make this explicit.

What the Tenant Insures	Examples
Contents	Office furniture, equipment, computers, inventory
Stock-in-trade	Goods held for sale, raw materials, finished products
Tenant's improvements and renovations	Built-in partitions, cabinetry, flooring, ceiling works, signage, specialised wiring
Machinery and equipment (if applicable)	Production equipment, kitchen equipment, specialised machinery
Plate glass (if required by lease)	Shopfront glass, display windows

The item most frequently missed is tenant's improvements and renovations. A retail tenant may spend RM300,000 on a shop fit-out. A restaurant tenant may invest RM500,000 or more. These improvements become part of the physical premises, but they are not covered by the landlord's building policy because they weren't part of the original building valuation.

If the tenant doesn't separately insure these improvements, a fire that destroys them is an uninsured loss. The tenant loses the entire investment.

The Tenant's Clause in Fire Insurance Policies

Standard fire insurance policies in Malaysia include a tenant's clause that protects the building owner in a specific situation: when the tenant does something that increases the fire risk without the owner's knowledge.

The clause states that the insurance covering the building owner's interest will not be invalidated by any change of occupancy or increase of risk taking place in the property insured, provided the change occurs without the knowledge of the building owner. In practical terms, if a tenant starts storing flammable materials or changes the use of the premises in a way that increases fire risk, the owner's policy remains valid as long as the owner didn't know about the change.

This is important because, under a standard fire policy, a material change in risk that the insured knows about but doesn't declare can void the policy. The tenant's clause prevents the owner from losing coverage because of something their tenant did without their knowledge.

What the Tenant's Clause Doesn't Do

The tenant's clause protects the building owner's policy. It does not protect the tenant. If the tenant's own activities increase the fire risk and the tenant hasn't disclosed this to their own insurer, the tenant's policy could still be affected.

The clause also doesn't cover the tenant's property. It only relates to the validity of the building owner's policy on the structure. The tenant still needs their own fire insurance for contents, stock, improvements, and business interruption.

Common Coverage Gaps Between Owner and Tenant

These are the gaps that Foundation sees most frequently in commercial property fire insurance arrangements. Each one creates an exposure that only becomes visible after a loss.

Gap	What Goes Wrong	Who Bears the Loss
Tenant assumes landlord's policy covers renovations	Tenant's RM300,000 fit-out is destroyed by fire; landlord's policy only covers original building structure	Tenant — uninsured loss
Landlord assumes tenant has contents insurance	Tenant never took out a policy; contents destroyed in fire; tenant blames landlord; dispute follows	Tenant — but dispute may involve landlord
Neither party has business interruption (BI) coverage	Fire shuts down the premises for 12 months; building is repaired, but tenant's lost revenue and owner's lost rental income are uninsured	Both parties
Lease says "tenant shall insure" but doesn't specify sum insured basis	Tenant insures for RM100,000; actual renovation value is RM400,000; average clause reduces payout to 25% of the claim	Tenant — underinsured
BI indemnity periods don't match between landlord and tenant	Landlord's BI covers 24 months; tenant's BI covers 12 months; rebuild takes 18 months; tenant runs out of coverage at month 12	Tenant — 6-month gap

The pattern in almost every case is the same: each party assumed the other's policy would cover the gap. Neither party verified this before the fire.

Reinstatement Obligations in Leases

Most commercial leases in Malaysia require the tenant to reinstate the premises to their original condition at the end of the tenancy. This obligation doesn't disappear after a fire. If the lease requires reinstatement and the premises are damaged, the tenant may be responsible for restoring the space to its pre-tenancy state, which means stripping out all tenant improvements (or what's left of them) and making good.

This creates a cost that many tenants don't anticipate. After a fire, the tenant faces two potential bills: the cost of their own losses (contents, stock, improvements) and the cost of reinstating the premises for the landlord. If the tenant's insurance doesn't cover reinstatement costs, this becomes an out-of-pocket expense on top of the fire loss itself.

Building owners should also understand the implication from their side. If the tenant can't afford to reinstate, the landlord may inherit a damaged or partially demolished premises and the cost of completing the reinstatement to re-let the space.

Practical Insurance Checklist for Building Owners

Action	Why It Matters
Insure the building on a reinstatement value basis, not market value	Market value includes land; reinstatement value reflects rebuild cost, which is what the policy needs to cover
Review the sum insured against current construction costs, not historical purchase price	Construction costs increase over time; an outdated sum insured triggers the average clause
Include loss of rental income (BI) in the policy	If the building is uninhabitable after a fire, rental income stops; BI covers the shortfall during rebuilding
Require tenants to provide proof of insurance annually	A lease clause requiring insurance is worthless if the tenant never actually takes out a policy
Ensure the lease specifies the minimum insurance requirements clearly	"Tenant shall insure" without specifying sum insured basis, coverage scope, or BI leaves gaps

Practical Insurance Checklist for Tenants

Action	Why It Matters
Insure contents, stock, and tenant's improvements separately	The landlord's building policy does not cover any of these items
Include the full cost of renovations and fit-out in the sum insured	Renovations that become fixtures are the most commonly underinsured item in tenant policies
Consider business interruption coverage with an adequate indemnity period	If the premises are destroyed, the rebuild timeline may be 12-24 months; the tenant's BI should cover the full recovery period
Check whether the lease requires specific insurance types or minimum sums	Non-compliance with lease insurance clauses can be grounds for lease termination
Factor in reinstatement costs when calculating your total exposure	If the lease requires reinstatement to original condition, that's a cost on top of your own property losses
Review your policy annually, especially after renovations or changes in stock value	Sum insured that was adequate at lease commencement may be insufficient after fit-out upgrades

Who Should Arrange the Insurance?

There is no single legal rule in Malaysia that assigns fire insurance responsibility to the building owner or the tenant. The responsibility is determined by the lease agreement between the two parties. In practice, the arrangement usually follows a common structure.

The building owner insures the structure and common areas. This is often a financing requirement from the bank. The owner may also insure for loss of rental income under a business interruption extension.

The tenant insures their own contents, stock, improvements, and business interruption. The lease will typically require this, and some leases specify minimum coverage amounts or require the tenant to provide annual proof of insurance to the landlord.

Problems arise when the lease is vague. A clause that simply says "the tenant shall maintain adequate insurance" without defining what "adequate" means leaves both parties guessing. The landlord assumes the tenant is properly covered. The tenant insures for the minimum they think is reasonable. After a fire, "adequate" becomes a dispute.

FAQ

Does the landlord's fire insurance cover the tenant's property?

No. The building owner's fire insurance covers the building structure and fixed installations that belong to the owner. The tenant's contents, stock, equipment, and renovations are not covered by the landlord's policy. The tenant must arrange separate fire insurance for their own property.

What is the tenant's clause in a fire insurance policy?

The tenant's clause protects the building owner's policy from being invalidated if a tenant changes the occupancy or increases the fire risk without the owner's knowledge. It ensures the owner's coverage remains valid even when the tenant does something that would otherwise void the policy. It does not provide any coverage for the tenant's property.

Do I need fire insurance if my lease doesn't specifically require it?

Even if your lease doesn't explicitly require fire insurance, you should have it. Without fire insurance, a fire that destroys your contents, stock, or renovations is an entirely uninsured loss. The landlord's policy won't cover your property regardless of what the lease says. For a detailed breakdown of what fire insurance covers and excludes, see our fire insurance coverage guide.

Who insures tenant renovations and fit-out?

The tenant. Renovations and improvements carried out by the tenant are the tenant's responsibility to insure. These items are not included in the building owner's sum insured because they weren't part of the original building valuation. This is the most commonly missed item in commercial tenant insurance.

Can the landlord require the tenant to show proof of insurance?

Yes, if the lease includes this requirement. Many well-drafted commercial leases require the tenant to provide a copy of their insurance policy or a certificate of insurance annually. This protects both parties: the landlord can verify the tenant is compliant, and the tenant has a regular reminder to review their coverage.

What happens to insurance if the building is damaged and the lease terminates?

If a fire renders the premises uninhabitable and the lease is terminated, the building owner's BI coverage (if any) covers loss of rental income during rebuilding. The tenant's BI coverage (if any) covers loss of profit during the interruption. Without BI, neither party has income protection. The reinstatement obligation in the lease may still apply depending on the lease terms and the extent of damage.

Foundation Conclusion

Fire insurance responsibility in a commercial property is split between the building owner and the tenant, defined by the lease agreement. The most common cause of dispute after a fire isn't the insurance policy itself: it's the assumption that someone else's policy covers the gap. Building owners need to insure the structure adequately and verify their tenants are covered. Tenants need to insure everything they own or have installed, including renovations that become part of the premises.

Foundation works with both commercial building owners and tenants across Malaysia to ensure fire insurance arrangements are structured correctly, with no gaps between the owner's policy and the tenant's policy.

Talk to our risk specialists about structuring fire insurance for your commercial property

Disclaimer: This article provides general guidance on fire insurance responsibilities between building owners and tenants in Malaysia as of March 2026. Lease terms vary, and insurance policy conditions differ by insurer. Always review your specific lease agreement and policy wording, or consult a qualified insurance professional before making coverage decisions.