Congratulations on your new office or storefront! Perhaps you’re about to begin moving into your new business location. If you’re at that point, then you more than likely spoke with the property’s landlord about insurance if you’re renting commercial space.
Before you sign the commercial lease, look at the fine print to see what kind of liability insurance is required. It’s commonplace for landlords to require at least one form of liability insurance since they don’t want to be financially responsible for anything that happens at your place of business. It helps to know these coverage types so your business can be insured while you aren’t overcharged on your premiums. In all cases, your commercial tenant insurance policy should be sorted out before the lease is signed. Consider this your cheat sheet to commercial insurance terminology and use.
Why Won’t Landlord Insurance Cover a Leased Commercial Property?
The property or landowner has their own landlord insurance, as it’s called. This is meant to help pay for damages done to their property, so your leased property is always protected. It’s you as a business owner that is in need of insurance.
The landlord typically handles all the expenses that keep the building running, like utilities and maintenance when it’s needed. Tenants pay their share since it’s included in the rent. Insurance is one of these expenses that both the tenant and the landowner share depending on the terms they agreed upon. Commercial insurance will cover you and your business. So you’d still be covered if your landlord opts to pay for the majority of the policy.
What Kind of Commercial Insurance Will a Landlord Require?
We can tell you that the most commonly required commercial coverage is general liability insurance, also called public liability or premises liability. Brick and mortar locations can’t open without general liability coverage of some kind. As driving a car requires a minimum amount of insurance that covers another if you injure them, so does running a business. If someone is injured in your building, say due to a wet floor, you would be covered against any legal expenses.
The policy would also cover any medical expenses or property damage sustained in the incident. What’s more, say that you run an ad for your business that is found to contain copyrighted material, your general liability policy covers any libel fees in the legal case against you.
The landlord may not be the only one who requires a general liability policy. The mortgage lenders and client contracts may also require it. Because of this, almost every retail location possesses general liability. That, and it doesn’t nearly offer all the protections that landlord insurance would. General liability costs an average of $42 on a monthly basis –that’s around $500 a year. The rates are typically determined by the property risks and location.
What Are The Different Types of Commercial Insurance?
These are the types of commercial insurance that would protect you financially in the event someone should suffer from an accident or injury while visiting your business. Any damage to the building or property would be covered by the landlord’s own insurance policy. Because they don’t want to be responsible for anything happening while your business operates, landlords will require the previously mentioned general liability insurance.
Aside from general liability, other commercial insurance that a landlord may require are:
- Business owner’s policy – A BOP bundles general liability and commercial property coverage together. This would mean that you would be covered for any accidents or injuries in the establishment with general liability and against any damage done to the establishment itself. Average rates are around $53 per month or $636 annually.
- Business interruption insurance – Landlords often push business interruption coverage because your business is a source of rent money. If you lose business for whatever reason and can’t pay rent, business interruption insurance will cover your monthly rent until your business is back open. Average premiums are around $40 to $130 per month.
- Commercial auto coverage – If your business uses a company car or truck, your landlord may require you to take out a commercial auto policy for all vehicles used for work. This includes comprehensive and collision coverage with the option to add your landlord as an additional insured. Average rates are around $142 per month or $1,704 per year.
- Worker’s compensation – Workers comp, for short, is a type of government insurance that protects an employee’s pay if they are injured or unable to come to work for health reasons. They may also be offered compensation. Rates are dependent on where your business is located.
- Plate glass replacement – Your landlord may require you to carry a plate glass replacement if the building has a lot of plate windows. If they’re accidentally broken, the insurance will cover the repairs and replacement. A purposeful break would be covered by the landlord’s insurance.
- Industrial special risk – Special risk insurance provides protection for an asset in your business with a high value. This can be the building itself or a piece of equipment that is essential to running your business. If the asset is lost or broken completely, special risk coverage can help cover the cost of a new one.
What Are Insurance Requirements in The Commercial Lease?
In addition to the insurance that you and your landlord carry, your commercial property’s lease may have its own coverage requirements. Many leases include what is called cross liability for claims against you by someone that is insured under the same policy –they may be an employee or co-worker. In a lot of cases, property leases also write in fine print that the tenant can’t cancel their policies without consent from the landlord.
The landlord is allowed to keep their own insurance for personal injury, property damage, liability, and unpaid rent. This can affect a tenant by raising their insurance premiums. If your leasing increases their risk with the insurance company, then you may be required to pay the remainder of the policy.
How do I Extend my Commercial Insurance?
What must be understood about commercial insurance for a rented property is that it’s got to cover three things on your end –yourself, your leased business, and your landlord. In fact, he/she may request that your commercial insurance be extended by adding their name to the policy.
Here are a couple of ways you can do that:
- Additional insured – With your landlord marked as an additional insured, they too are covered if someone is injured on your premises. This is the most common practice of extending coverage to landlords.
- Named insured – Additional insured only offers some of the policy benefits to the landlords. If they are named insured, then they get 100% of the coverage in the policy.
- Interested party – Your landlord doesn’t receive any coverage as an interested party. Instead, they are kept in the loop whenever you cancel or make changes to your policy. It really helps keep your landlord informed.
- Note interests – By noting the interests of your landlord on your insurance policy, you’re keeping your policy limit in a range that they prefer.
Commercial insurance for a leased property is a multi-personal process of receiving the right coverage. Sit down with your landlord and plan it out today!