WHAT INSURANCE DOES MY COMMERCIAL TENANT NEED?

Tenants have lots obligations under a commercial or retail lease. Among these is the obligation to hold insurance. In this video, I’m going to talk about what types insurance your commercial tenant needs. First and foremost is public liability insurance.

 

Video Transcript

Public Liability Insurance covers you if a member of the public hurts themselves in the property. Imagine the worst-case scenario. Say you own an industrial property investment and your tenant runs a gym.

Now imagine that a customer of your tenant falls and permanently injures their back while working out. It’s the tenant’s business, but it’s on your property! So who cops the blame?

The need for insurance covering a scenario like this is obvious. It’s the most important insurance your tenant will need to hold. Standard commercial leases require tenants to hold $20 million in public liability coverage.

Another common type of insurance required by tenants is plate glass insurance. This one is particularly important in retail spaces. While you, the owner, might have building insurance, it’s standard practice to make your tenant take out sufficient plate glass insurance.

Building insurance itself is usually arranged and paid for by the landlord. But if you have a fully net lease, that is, if the tenant is paying for all of the outgoings, you may be able to recoup this cost from the tenant.

Depending on your unique lease, your tenant might also be required to have insurance for their own plant, equipment and stock. You might think that it’s not your problem if your tenant doesn’t insure their own stuff. Why bother writing this into the lease?

There’s a very good reason for this. If, for example, a break-in or a fire occurs, a tenant with contents insurance is less likely to point the finger of blame at the property owner.

Finally I want to point out that writing these requirements into the lease is not enough. You, or your property manager, need to check with the tenant that they have followed through and taken out the require insurance.

Ask them for a copy of the insurance document and make a note of the expiry date. Then check they have renewed it each year. This takes a bit of work, but it’s worth it in the long run.

Insurance is all about covering the worst-case scenario. Hopefully this video has helped shed some light on insurance issues when it comes to commercial property investment.

If you have any more questions about your obligations as a commercial property owner, feel free to get in touch with us at Nutshell Property today.

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