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Commercial Lease Agreement: Insurance Requirements Crash Course for Renters

Commercial Lease Agreement: Insurance Requirements Crash Course for Renters

Ah, the thrill of finally finding the perfect office space. The location is right, the monthly rent is right, even the view is exactly what you hoped for.

There’s just one thing standing between you and the keys: the commercial lease agreement. Amidst all the legal jargon about parking spaces and maintenance is the section about insurance requirements. Do you have the right kind? Do you have enough? Be sure to find out before you sign on the dotted line…


Are Those Requirements Really Required?

Before a lessor or landlord can require you to provide proof of insurance, they must have a legally insurable interest in the items for which they are requesting coverage.

Do they require contents coverage (property insurance)? If the landlord is providing or leasing furnishings or equipment to you (other than the building) they can require proof of contents coverage with them listed as the loss payee. Usually this is not the case, so the landlord cannot require this coverage. It is a good idea to have this coverage anyway, so please consult your insurance broker to find out how to include this coverage in your insurance portfolio.

Do they require liability insurance? Some landlords may require that you carry “x” amount of liability insurance, and some may require that you name them as an additional insured on the policy. In the event of an injury on the tenant’s premises a plaintiff’s attorney will often sue the tenant, the landlord and anyone else associated with the premises. If the claimant was injured on your premises or due to your negligence, your landlord will want legal protection under your policy.

Do they require auto liability insurance? This is another of those situations where the landlord has no legal insurable interest in your vehicles so this should not be a requirement.

Do they require worker’s compensation insurance? If you have no employees, the state cannot even require you to have this coverage, so a landlord also cannot. Injured workers are not the concern or responsibility of the landlord.


You Have The Right To Request Changes

Just because a lease looks standard does not mean that changes can’t be made. Review the insurance terms of the lease with your insurance broker to determine what the landlord can or cannot require you to insure and discuss these with the landlord BEFORE signing the lease so that the proper changes can be made.

In many cases the lessor may waive some of the insurance requirements without changing the contract prior to signing. It is always a good idea to get any changes made in writing before signing.


What is Fire Damage Legal Liability?

Most general liability policies offered today include in the policy limits a small amount for fire damage legal liability (this may also be called Damage to Rented Premises). This amount can range anywhere from $50,000 to $300,000 or more depending on the insurance carrier.

This amount of coverage is offered on rented or leased premises, whether long or short term. It allows for payment to a landlord or lessor in the event of a fire (and only a fire) for which the insured (you) are found to be legally liable. However, the amount in the declarations of the policy will only be paid out on the damages to the portion of the building that you do not occupy. Damage to the premises you rent would come out of your own pocket. If you rent the entire building, there would be no coverage at all. A mutual waiver of subrogation may help in this situation, so it’s a good idea to talk to your insurance broker.


The best thing you can do to protect yourself and your landlord is to be proactive. Provide a copy of your (unsigned) lease agreement to your attorney AND your insurance broker to review the terms prior to signing. You’ll only be sorry if you DON’T do it.


  1. we occupy an entire building and manage it ourselves on a NNN basis. Per our lease we are required to reimburse our Landlord for property insurance for the building. They purchased a policy that has EPLI insurance – that seems odd to me since they have no employees managing the building. What are your thoughts?

    • The coverage being purchased by your landlord may be a package policy that includes liability, property, EPLI and other coverage. If they require you to pay the property portion, perhaps that is all you are reimbursing them for? It might be best to discuss this with a real estate attorney, and also contact your own insurance agent to make sure you (1) aren’t paying for coverage you aren’t entitled to use and (2) aren’t paying for double coverage through their policy and your own.


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