Insurance Requirements in Lease Agreements – Commercial Property Insurance

I looked at the lease agreement for the building I rent and it appears the landlord wants me to be responsible for damage to portions of the building, such as HVAC equipment and glass. Will you review the lease for me and let me know what kind of insurance I need?

That’s an excellent question. We applaud you for reading your lease agreement and noting there are some obligations that may require additional insurance coverage.

We would be happy to review the lease agreement to determine if there are any insurance requirements or other obligations that can be insured. In performing our review, however, please note we are not attorneys and we are not providing legal advice or a legal opinion concerning any portion of the agreement. In addition, our agency is not undertaking to identify all potential liabilities that may arise under the agreement. We recommend that you seek the advice of your attorney before signing the lease agreement if possible. We will be available to discuss any insurance requirements of the agreement with your attorney, if you want us to do that.

Building lease agreements almost always contain clauses that require the tenant to insure something.

Liability Insurance. Most lease agreements require the tenant to carry liability insurance with a specified limit of liability, such as $1,000,000 for each occurrence, and usually require the tenant to add the landlord as an additional insured. This coverage protects you and the landlord in case a customer or visitor is injured while on your premises. These requirements are easily addressed with a Commercial General Liability policy that includes a special endorsement to include the landlord as an additional insured.

Property Insurance. A tenant’s obligation for damage to the building may not be expressed in the lease agreement at all. You may be legally liable for damage caused by your negligence or the negligence of your employees. For example, if a fire caused by your negligence damages or destroys the building, you may be responsible for the full cost of repairs or replacement. Your general liability policy provides only a limited amount of fire damage legal liability coverage for such a loss. Other types of damage, such as accidentally running a vehicle through the side of the building, are not covered at all. One way to avoid this type of liability is to negotiate a provision in your lease that requires you and the landlord to carry property insurance on property owned by each of you. You agree to carry insurance on your business personal property and the landlord agrees to carry insurance on the building. Another provision in the lease then prohibits your respective insurance companies from trying to recover the amounts paid from the responsible party. This is called a “waiver of subrogation”. If you have already signed the lease without such provisions, and you can’t re-negotiate the lease to add them, your agent can arrange the appropriate coverage for this exposure.

Sometimes there are more specific requirements in lease agreements that make tenants responsible for all kinds of damage – including wind or hail damage to specific components of the building, such as HVAC equipment, roof coverings and glass. In addition, lease agreements may make tenants responsible for routine maintenance, repair or even replacement of HVAC and other building equipment. We can arrange the appropriate coverage for these exposures, but only if we are aware that they exist.

That’s why it is important for you to carefully review your lease agreement with your attorney and your insurance agent.

This article was prepared and made available to your agent by the Independent Insurance Agents of Texas, which is solely responsible for its content. Please read your insurance policy. If there is any conflict between the information in this article and the actual terms and conditions of your policy, the terms and conditions of your policy will apply. The Independent Insurance Agents of Texas is a non-profit association of more than 1,800 insurance agencies in Texas, dedicated to helping its members succeed, in part by providing technical resources that explain insurance policies sold to their customers.