Numerous indirect - or consequential – property insurance losses can result from a covered peril, like fire or water damage. Indirect losses from these simple perils can impact your bottom line as well as long-term profits, especially when there’s a question of tenant or landlord liability for the covered peril and subsequent loss of revenue.
Thankfully, there are a few things you can do to minimize indirect exposures. The first is to secure the right coverage and the corresponding endorsements on your landlord property policy. Landlords will also want to consider the following when it comes to amending their tenant lease agreements:
- Create a common lease agreement for all tenants whenever possible. Having a single lease agreement means all tenants know what to expect – and adhere to the same set of rules especially when it comes to insurance/indemnification/hold harmless clauses. Sure, concessions and additions may arise, and larger spaces will garner higher fees, but a single tenant lease agreement will reduce headache and potential liability.
- Develop and maintain a controlled insurance program. When tenants procure their own property insurance, or there is a triple net lease in effect, landlords can face coverage gaps and unknown exposures, which can lead to legal issues. Procuring a controlled program ensures uniform coverage across a landlord’s real estate holdings. Policy costs can be billed back to tenants in their common area/maintenance fees as an allocation. Be upfront and include this information in tenant lease agreements. Let them know you have a controlled program in force for the building and public liability. Ensure every tenant procures their own business insurance and require the tenant to name you (as landlord) as an Additional Insured and secure a Certificate of Insurance to this effect. Be sure the tenants carry a minimum of $1,000,000 per occurrence, $2,000,000 aggregate for General Liability and whatever suitable excess limits might be necessary.
- Be intentional with rental abatement wording. After a covered loss, i.e. flood, fire or explosion, that caused physical damage, it will take a prescribed amount of time before the facility is back up and running. The rental abatement clause determines whether a tenant can suspend full or partial rent payment until their space is repaired. Closely examine the wording on rental abatement in your tenant leases. Make sure you can meet the requirements of the wording and that there are no surprises for either you or the tenant. Be sure to have the proper Rental Income Coverage in place depending on the lease wording.
Contact your HUB Real Estate Specialist for more information on transferring your risk and composing tenant lease agreements.