Business owners who lease property for their businesses must be aware that every lease is unique. Any lease you sign can drastically affect your insurance needs. The best suggestion is to have the lease carefully reviewed by your legal representative and insurance broker before signing on the dotted line.
Insurance Considerations and Commercial Property Leases
Key insurance factors to consider include the following:
- Obligations and rights of tenants and lessors regarding disputes will vary from state to state.
- Confirm that the person signing on behalf of the lessor has the authority to sign the lease. Otherwise, the lease may be void should the owner suddenly sell the property.
- Ensure that the premises will fully conform to required building codes or any other statutory requirements, and that the lessor will absorb all costs to make it so. The same should also apply to any equipment or machinery already contained within the premises which is to be used by the tenant under the terms of the lease. The costs of any required repairs or alterations should also apply to contaminated property such as the removal of asbestos.
- Incorporate an ‘all risk’ property insurance policy for the full replacement value of the tenant’s equipment, inventory, fixtures, performed alterations, belongings and supplies in the event of a loss.
- Obtain an ‘all risk’ installation floater for any repairs or alterations that have been agreed upon between the lessor and the tenant.
- Consider purchasing an (ISO) Insurance Services Office endorsed commercial general liability coverage or comprehensive general liability policy which should contain broad form contractual liability coverage, fire legal liability coverage, and premises medical payments coverage.
- Purchase business interruption insurance to cover all required expenses, including rental costs and fixed costs which might result due to the destruction or damage of the lessor’s property, for at least nine months.
- Include additional insureds such as employees, the lessor and their agents as your insurance coverage applies to personal and bodily injury.
- Include coverage for plate glass, earthquake and water damage. Coverage should also include fire and vandalism.
Insurance requirements as they relate to leasing business property can be complicated. This is true especially as your insurance needs relate to the agreed upon terms of the lease itself. Your rights and obligations pertaining to a lease should be reviewed and negotiated by someone qualified, just as your business insurance needs are best reviewed with the assistance of an insurance broker.