03 Dec The Rising Risk of Tobacco Retailer Tenants for Strata and Property Owners

Earlier this year we wrote an article about high-risk tenants for strata and property owners. In this article we highlighted that the appetite in the insurance market for tobacco retailers was low. Due to the well-publicised increase in violent attacks on premises occupied by tobacco retailers (including tobacconists and convenience stores), insurers have further reduced their appetite for this category of tenants in response to the higher risk that these businesses attract.

By understanding the change in appetite with these risks associated with these tenants and taking steps to mitigate them, strata managers and property owners can safeguard their properties and ensure adequate insurance coverage.

What has been happening?

Victoria’s “tobacco wars” are alleged by police to be driven by organised crime gangs battling for control of the illicit tobacco trade. As of October 2024, Victorian Police confirmed the number of firebombing attacks on tobacco retailers surpassed 100 for the previous 18 months1.

The fear is that these attacks have spread across the borders, with South Australian police reporting 17 stores being firebombed and 14 arson attacks in NSW2.

These events have had a ripple effect, impacting not only the tobacco retailers themselves, but also neighbouring businesses and residents alike.

How are insurers responding?

Tobacco retailers were already considered a high-risk tenant for insurers, largely due to the tobacco and associated products being lucrative on the black market. Due to the increased criminal activity in the last 18 months that is related to organisations/businesses that sell these products and the increased likelihood of a loss resulting from fire damage, theft, vandalism and malicious damage, the risk profile of tobacco retailers has significantly heightened and subsequently raised the risk profile of the property overall.

There is currently next to no appetite for property with a tobacco retailer as a commercial tenant amongst Australian underwriters and insurers. Properties that have tobacconists as a tenant are likely to have their insurance renewal declined by the current insurer.

What can be done to safeguard my property?

If you are considering taking on a tobacco retailer (including tobacconists and convenience stores) as a tenant at the property, we urge you to consult with us first to ascertain whether there may be any implications for your insurance policy.

It is highly likely that an insurer will cease cover in the middle of an insurance period if a tobacco retailer moves into a property. If a local insurer is unwilling to insure the property, overseas insurers will need to be approached and, if successful, will generally attract a much higher insurance premium in order to provide the insurance cover.

For the local insurers that are willing to provide cover for properties occupied by tobacco retailers, it is not uncommon to see a higher excess applied in relation to any fire or malicious damage claim. These excesses can be in the vicinity of $100,000 and above. As a result of the increased risk at the property, insurers will charge a higher premium than what an owners corporation or property owner would ordinarily have paid without the tobacco retailer tenant.

Depending on the insurer’s position, you may elect not to allow this tenant to occupy your property or take other measures to manage the consequences of having this tenant in your property. NSW Small Business Commissioner released a statement for property owners to consider insurance risks before entering or renewing a lease. The Commission offers a mediation service to help resolve leasing disputes and can offer guidance to parties needing assistance with leasing matters.

1. The Guardian. (2024, October 9). Firebombings of Victorian tobacco shops surpass 100 as police detail meeting that sparked war.  https://www.theguardian.com/australia-news/2024/oct/09/firebombings-of-victorian-tobacco-shops-surpass-100-as-police-detail-meeting-that-sparked-war-ntwnfb

2. ABC News. (2024, November 15). Tobacconist ram raids in Tweed Heads and Ballina linked to Queensland organised crime network.  https://www.abc.net.au/news/2024-11-15/tweed-tobacconist-ram-raid-ballina-arson-police-investigate/104604202

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