Office warehouse insurance 

Does insurance for commercial leases protect the tenant and why is it required? Office and warehouse insurance is really a credit enhancement , an example would be if Exxon Mobile lease an office building , would they have the money to build another one if something went wrong? Of course, they have a lot of capital to do so, so technically they do not need liability insurance for their office or do they?

Finding a credit worthy company to take on the risk for the tenant is why office or warehouse insurance is required.  Property insurance is required for the landlord, because the landlord’s lender and the tenant needs the landlord to have property insurance so they can stay in business within their office or warehouse property.

Liability insurance for warehouse property

A common question among tenants, who are not familiar with the insurance provision, is: Why do I need liability insurance if the landlord has insurance. Landlord’s insist on the tenant to have liability insurance for commercial property to insurance their assets and give the landlord a better position that if something happens to the building , the tenant can afford to replace their property and their fixtures without using their own funds. Hence, the tenant can stay in business.

Another reason, for a landlord to ask a tenant to have insurance the landlord may get a better deal to be named as an additionally insured on the insurance policy. Typically the landlord will ask the tenant to get as much insurance as they possibly can as well as the landlord can possibly have.

Tenants who work with a good broker will at times recommend input from a commercial insurance broker if there are any questions. Not every insurance broker is a competent “commercial insurance broker”.  Just because an insurer writes a home policy does not mean they understand commercial insurance.  A good commercial insurance broker would be able to tell a tenant where to go to get the best commercial insurance policy for your risks.

Most landlord’s insurance will cover the structure if there is a fire etc.. This is commercial property insurance to cover the property’s physical component. A lot can go wrong with an owner’s property that can result in a lawsuit which a liability policy which covers an injury to a person on the landlord’s property.  Insurance for a landlord can also cover their income stream as well.

Tenant’s liability insurance covers acts and people doing the act primarily. It will pay when you have to pay someone else for your negligence or damage that you cause.  Property insurance is for insuring the loss of your personal property.  There are several types of liability policies for a tenant that is not geographically limited.

Waiver of Subrogation provision: it is not given from the landlord to the tenant or vice versa.  Waiver of Subrogation is used for property insurance policies.  As explained by an attorney. “Subrogation” as an example is when a tenant leaves a burner on and it burns down the landlord’s property.  The policy kicks in for the landlord and check is cut to the landlord by his property insurance company. Once the landlord’s insurance company pays the landlord, that property insurer can come after the tenant who caused the fire which burnt down the property which would be a tort claim if there is no waiver in place.

The landlord and the tenant agree to waive these claims against each other in the waiver of subrogation.  The insurance companies price this waiver risk into their premium. The landlord in essence releases each other for damage to each other’s property, and therefore the insurance companies will not chase either party. What is critical is that each parties insurance remains in place although they have waived the ability to make clams against each other. (Landlord and tenant)

Remember tenants insure their own property and the landlord will insure their commercial property using property insurance while the landlord can push those costs thru to the tenant in the market place with a NNN lease in place.

Certificate of Insurance: is a snapshot of what exists for the tenant which may or may not exactly show or what endorsements exist for what the tenant has in place.  Certificate of Insurance documents cannot be modified.

It is important for the landlord to rely upon themselves to carry liability and property insurance of their own on top of what is in place for the tenant being named as additionally insured on a tenant’s policy.

If a tenant or a landlord has key questions about insurance within a lease provision, they should always consult a qualified consultant that understands insurance provisions and what is required to cover each party adequately.