Five Things You Need to Know About Lessor’s Risks

August 5, 2019


 Congratulations!  That empty space that you’ve wanted to rent out has finally found a tenant!

While there are a number companies and individuals who own buildings and rent out space to others, in the Insurance World, we call these Lessor’s Risks.  While this arrangement is typically beneficial to all involved, it can create insurance risks that you - as the property owner - may not have considered.  Here are five risk strategies that owners should consider when determining insurance requirements for tenants:

 - Require your tenants to purchase a commercial policy.  A policy that includes $1M per occurrence, $2M aggregate general liability, and coverage for the tenant’s property is a good place to start.

  - Make sure that you, the owner of the building, are listed physically on the tenant’s policy as an additional insured.  This does two things: One – you become insured under your tenant’s insurance policy.  The tenant is now protecting you, the owner, should a claim arise.  Two - if your tenant doesn’t pay their premium, the tenant’s insurance company will notify you of the impending cancellation.

 - If your tenant is modifying any of the rented space (such as offices, conference rooms, build-outs, etc.), you may want to require your tenant’s insurance to cover a category called “Tenant’s Improvements & Betterments.” This way, if a claim is made for building damage, the tenant’s insurance  pays for the rebuilding of the ‘Improvements & Betterments’ which protects the upgraded value of your property.

 - Depending on the nature of your tenant’s business, you may wish for them to acquire an Umbrella Policy. This policy increases the limit of liability and puts another layer of safety for you and your tenant in the case of a serious accident or injury.

 - Usually, the tenant’s insurance will pay up to $100,000 for fire damage in your building if your tenant is responsible for a fire.  However, non-fire damage to your building can be caused by your tenant.  Encourage your tenants to have “Legal Liability” coverage to expand coverage from fire only to anything that the tenant is responsible for.

Do you need help determining your insurance needs for your tenants? Contact us today!