What You Need to Know About Commercial Leases: Common Insurance Requirements
Funding typically triggers another insurance inflection point in the startup journey: signing a commercial lease. A common insurance request from startups is to make sure current insurance coverage will meet the landlord’s requirements in a lease. This month’s blog shares common insurance requests by landlords and a few insurance tips.
*** Obligatory Disclaimer: Negotiating a lease should be conducted by licensed real estate brokers and the lawyers on both sides of the transaction. Every lease or sublease agreement is different, so be sure to engage with competent representation. It could save you major headaches down the road.
The Common Insurance Requirements in A Commercial Lease:
- Commercial General Liability – This is common, and every single lease should ask for this. So don’t be surprised.
- Excess Liability or Umbrella Coverage – These terms are often used interchangeably, but they are not the same. The limits here will depend on the size and sophistication of your landlord.
- Property Coverage for Business Personal Property – Most leases are pretty clear responsibilities of each party in a loss situation, such as a fire. You cover your property (e.g. computers, furniture, ping pong table, kegerator, etc.), and they cover theirs (e.g. the roof, walls, HVAC, common areas, etc).
- Business Income and Extra Expense – Landlords ask for this in the case where a loss keeps you from making income, you are still able to keep paying rent.
- Workers Compensation and Employers Liability – If you slip and fall in the lobby of the building, they want your workers compensation policy to pick up the medical bills, not their general liability policy. This is also why they might ask for a waiver of subrogation. This keeps your workers compensation carrier from negotiating payment from their general liability carrier behind the scenes.
- Additional Insured Status: This is standard in the industry and typically does not cost you anything. This essentially extends coverage to your landlord on your insurance policy.
What Can You Negotiate:
- Limits – The most common negotiation points are with the general liability and umbrella limits. The larger the landlord is the higher the limits they typically require. This is something that can be pushed back on, particularly with local landlords. Often times I have seen a landlord require a $5M limit. Though this can be obtained by a combination of the general liability limits and umbrella limits, it may be cost prohibitive for some startups with a short runway. I advise my startups to show them what you have in place and see if those limits are acceptable. More often than not they are more concerned with making sure you have limits in place than the actual limit.
- Language – This is where we get into the ‘doing business with Wal-Mart’ type of scenario. Larger and more sophisticated landlords will have language that will favor them in most situations. This is definitely something your lawyer needs to review, but look for terms like ‘hold harmless’, ‘any and all’.
- Coverage specifics
What Information Will Your Broker Need to Get the Appropriate Coverage in Place:
Once the lease is signed, they will need to update your broker so they can update your carrier. To add the new location your broker will need basic information, which can be found in the lease:
- Address, including suite number(s)
- Square footage
- Commencement date
Your insurance broker will also need info about the building in to order add the location. Even though you don’t own the building, if you have business personal property in the building, the underwriters will need to know the characteristics of the building, such as:
- Year built
- Number of stories
- Type of construction
- Updates for roof, plumbing, and electrical
- Is there a sprinkler system?
- Is there a central monitored alarm?
- You may have to ask the landlord, property manager, or real estate broker for some of this information.
Image of Certificate of Liability Image
Most leases will ask for a Certificate of Insurance (COI) to show proof of the coverage listed above. To avoid any back and forth, it would be helpful to forward on the lease or at a minimum, the indemnity and insurance paragraphs of the lease showing:
– Legal name of the landlord
– Mailing address of the landlord
– Specific requirements for the Certificate of Insurance:
– Do they need to have additional insured status?
– Is a waiver of subrogation required?
– Is there specific language needed in the remarks section?
In summary, this blog should prep you for some of the common insurance requirements requested by landlords so you are not surprised with the requests or language. Be sure to lean on your commercial real estate broker, legal counsel and commercial insurance broker to make sure you are looking out for your company’s best interests. Definitely keep your commercial insurance agent in the loop as well to make sure you have the appropriate coverage in place.
Congrats on your new space!
Last month, I had the pleasure to be back in Austin, TX to deliver a talk at the Austin Tech Council, on European expansion for U.S technology firms.
There, similar to many other events I’ve participated in throughout the US, two recurring themes on international expansion – ‘opportunity’ and ‘timing’ – featured most prominently.
These are the two aspects that I am most frequently engaged in with US tech entrepreneurs, their investors and advisors who have European expansion in their sights.
Opportunity & Timing
In my experience, the ‘timing’ question typically arises for strategic evaluation at the point at which organizations achieve a certain point of scale in their growth cycle. I generally see that occurring just after Series B funding stage.
Of course, consideration for overseas expansion can and does occur either-side of that milestone. But it is that post-Series B stage, where I see the majority of early growth-stage U.S tech companies, giving internationalisation most consideration and evaluation.
As a tech enterprise looking at expansion into Europe, you will have a number of priorities beyond the obvious ones of
- increasing sales
- international footprint
- and the operational aspects of servicing new overseas customers.
All of these considerations and evaluations are relatively straightforward business-making decisions for any entrepreneur who has guided their business to Series B stage or similar paths with other ventures.
The most difficult question of all – and the one which no amount of domestic experience and success to date can truly provide guidance on:
Where, geographically, should I setup and locate my European base?
After all, the European Union is comprised of 28 separate countries with a population of 513 million, 24 official languages, 11 currencies and 28 different tax regimes.
However, we believe the selection of which European base to setup in, can for the majority of tech companies, be distilled down to a shortlist of 4 locations. These are
London continues to attract the largest number and the greatest share of tech investment in Europe. For instance, in 2018, London raised more VC capital ($2.3 billion) than any other EU city and it attracted almost double the sums raised by its counterpart European cities; Berlin ($1.2 billion); Paris ($1,08 billion), Stockholm ($286 million) and Barcelona ($232 million).
Whilst 2 of our 4 recommended cities may not be financial heavyweights in the league table of absolute inward investment, we include both of these cities because of their
- ease of doing business
- talent pool
- and (in the case of Dublin, Ireland), it is the only other EU country whose first language is English
- and it also has particular depth in back office support and inside sales functions.
Once your decision has been reached about where to establish, the question of hiring – who and when – arises.
An obvious choice can often be to parachute-in one of your existing US team members to commence operations. However, while this option will certainly kick-start the process, sooner rather than later, the necessity for local talent will arise.
I cannot stress highly enough, the importance of choosing the right candidates for these initial key hires. Too often, I have seen US enterprises starting up in Europe, have their progress stunted by 6 – 12 months, purely by mis-hiring at key-person stage and it is usually cultural fit lies at the heart of this problem.
Yes, the term ‘cultural fit’ can be somewhat of a generic catch-all, so let me be more specific by advising you to avoid the temptation to hire the management pillars of your new EU enterprise, from within the ranks of the big-tech sector because all too often, they will lack the entrepreneurial intuition, the operational dexterity, the hands-on approach and the adaptability required to cope with the less structured, more dynamic aspects of an early-growth stage enterprise.
Data Security & Sales Taxes
Two other key considerations in Europe, are the need to pay particular attention and to adhere to data protection legislation and sales taxes filings.
In terms of data protection, EU regulations are much more onerous than in the U.S and the financial penalties for breaching are sizable.
This is equally true for any late payments or delinquency on sales taxes – Value Added Tax – (VAT). Enforcement here is especially stringent in B2C markets.
With regards to the processing of payments through your European entity, you can certainly begin by accepting US Dollar payments. However, as your business grows, payment processing in local currencies will become critical and with this will come the need for currency management.
My final piece of advice here is be prepared to dedicate time and resources to build your international business as well as involve your management team from across your existing business.
Once you commit to international expansion, don’t stay detached from it by assuming that your new in-country team can do it all flying solo. Finding the right balance between micro-managing and total delegation will be key to the success of your new venture and investment.
David is the founder and CEO of Orsa Saiwai. Orsa Saiwai guides, advises and assists U.S technology companies on their international expansion in Europe.
For more information on how we can help U.S Technology companies see www.orsasaiwai.com
In a perfect world, we wouldn’t have to worry about potential workplace violence. However, modern circumstances have shown that it is better to be prepared for any situation instead of just hoping it won’t happen. Below are tips from G&A experts about what to do when faced with potential violence in your workplace.
Implementing a zero-tolerance policy
One tip from our webinar on workplace violence is to set a zero-tolerance policy for any type of possible violence. This helps your business define what is acceptable conduct and what is not; clarify the reporting process when events happen; define how investigations will take place; and, makes a strong statement on what the consequences will be for violations and against retaliation.
Offer an employee assistance program
An employee assistance program (EAP) can help employees with potential problems before they become bigger issues. Workers who become violent often do so because of stressors in their personal life that build into unacceptable behaviors. EAPs can include counseling services, legal advice, and direction for where the employee can find help when needed. Related strategies include planning ahead and addressing problems before they escalate.
Identify and prevent bullying behaviors
Malicious rumors, workplace sabotage, nonstop criticism, raised voices, insults and more can lead to actual threats of violence. Addressing these types of behaviors head-on with clear policies and proper training can help prevent minor aggressions from turning into more violent behavior. Click here to learn more about creating a bully-proof workplace.
Other tips to keep in mind are to create emergency action plans for every kind of emergency, including workplace violence. Make sure your reporting system is solid and prevents a backlash against the person making the report. Don’t just lay out a policy – hold training about the policies and run practice drills for each of the scenarios. If you don’t know how to develop a workplace safety program, click here for a quick how-to guide.