Commercial Tenant Insurance Overview

Written by:
John Hubbard RIB, CAIB
Tel: (905) 712-4668
Fax: (905) 712-3586
Toll Free: 1-800-900-2009
www.hubbardinsurance.com
john@hubbardinsurance.com

The insurance requirements for a tenant of commercial space are driven mostly by the elements of the lease agreement with the building owner.

It’s always a good idea to have your insurance broker review the insurance requirements of the lease, typically those 2 to 3 sections of the lease that deal with insurance, prior to signing. But certainly soon after and prior to occupancy, to make sure that your firm’s current or proposed coverage is adequate enough to satisfy the lease requirements.

Our office has literally reviewed hundreds of leases and there are many variations we’ve run across. Frequently they are also negotiable to some degree as well, so this step becomes even more important then many people think.

That pre-amble out of the way, as a general guideline, you will typically see the following elements, amongst others, in the lease that outline your responsibilities:

CONTENTS coverage; there will be a paragraph that makes it your responsibility to insure any of your own assets including furniture, equipment, phone systems on an “All Risk” basis and c subject to replacement cost.

Beyond that it is also typical for landlords to make the tenant’s insurance responsible for the value of any tenant’s improvements they, or you do to the space, prior to your moving in. This includes walls & carpets to name a few items. You’ll need to determine this value from the landlord so it can be reflectedas Tenant’s Improvements on your commercial property policy.

After the sprinklers go off unexpectedly is not the time to find out that the landlord did $100,000 of work before you moved in that was your responsibility to insure.

BOILER & MACHINERY coverage; more commonly known as MECHNICAL BREAKDOWN.

There are common exclusions under all business policies which specifically exclude losses from hot water heaters, power spikes, brown outs, telephone systems, electrical panels, any pressure vessel over 15 PSI to name a few. Mechanical breakdown coverage plugs these coverage holes.

LIABILITY coverage; this is coverage for your premises and operations, slip and fall, product liability etc.

There will be a section that deals with Commercial General Liability and most likely you will see a requirement that a minimum limit of $5,000,000 is required and that the policy include the landlord building owner as “An Additional Insured”.

This is an area where we’ve seen some flexibility with some landlords and the ability to negotiate, i.e.: if they ask for $10,000,000 in limits and all you have is an office in the space, they may reduce this requirement.

TENANT’S LEGAL LIABILITY coverage; this is the section that deals with fire and general damage to the space you occupy.

More often then not, the lease makes you contractually responsible for the portion of the building that you occupy your square footage. This is not an expensive coverage to purchase

The amount of coverage to carry is often arrived at by a value multiple by square foot occupied i.e.: a 3,500 square foot office space at $100 per square foot = $350,000 in Tenants Legal Liability

In general, we see ourselves stepping into the role of “Risk Manager” for our clients, partnering ourselves with them, so welcome the opportunity to review all lease and other contractual agreements that you may enter into.

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