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.