Insurance-related risks are not always obvious and could result in a costly uninsured surprise for commercial leaseholders.
As insurance professionals, we have the skills and experience to help insureds review the insurance provisions in their commercial leases prior to signing the documents.
Although commercial lease agreements can be complex and time consuming to negotiate, business owners often fail to consult with their property and casualty insurance brokers on the implications of these contracts to their insurance needs or obligations.
What's more, only experienced P&C brokers are qualified to extract all of the risks related to insurance provisions in commercial leases. Failure to do so not only leaves insurable exposures unattended, but neglecting to dovetail a commercial insurance program with lease obligations can lead to significant uninsured risks and even bankruptcy.
Principals and their attorneys should understand these six critical risk and insurance provisions in commercial leases:
No 1: Who is responsible for insuring what?
Well-written insurance provisions in commercial leases will clearly define each party's insurance obligation. Language written by an attorney who is unfamiliar with insurance terms can lead to vagueness and misunderstandings. For example, a lease could read as follows: “Tenant is responsible for insuring their personal property and leasehold improvements… Landlord is responsible for insuring the building…”
In this case, the leaseholder's insurance representative should review and assist in making sure the language to ensure your policy will respond as it should.
Related: Real Or Personal Property?
No. 2: Insurance requirements of both parties
Many leases only include insurance requirements of the Tenant. But, in these cases, the tenant might be left with significant exposure if the landlord does not also purchase adequate insurance. Both parties should be required to purchase property insurance for the obligations noted above and also other policies, including general liability, auto liability and workers compensation.
Each party should name the other as an additional insured. Of course, a requirement for both parties to provide evidence of insurance is also recommended.
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