Whether you are an office tenant or a broker or lawyer representing an office tenant, here are five things to consider regarding your insurance obligations under a lease:
- Know what you are insuring. For most multi-tenant office buildings, the landlord obtains the property insurance on the building itself. The tenant is responsible for insuring its personal property in its space (i.e. furniture, fixtures, equipment, artwork, etc.) and any above-standard (read: high-end) improvements. Make sure this is how the lease reads. If it is not, confirm with your company’s risk management team that you have or can obtain the type of insurance requested in the lease.
- Make sure that you only need to provide the landlord certificates evidencing coverage rather than copies of all actual policies. First, many corporations do not like sharing their insurance program details with anyone outside the company. Second, the policies themselves change frequently and are often quite bulky. You are not going to want to be responsible for ensuring that the landlord has up to date copies of your policies.
- Make sure that your risk management team can comply with any other insurance specifications made in the lease. For example, many landlords dictate the minimum insurer rating (AM Best), the type of certificate (i.e. Acord form), the size of deductibles, the size of policies and whether the landlord is entitled to notification of changes and/or cancelations of policies. Ideally, I strive for a reasonable rating, no specific certificate form, “commercially reasonable” deductibles and notifications only in the event of “material changes” or cancelations.
- Try to limit the number of additional insureds required in the lease. Some leases will contain a long list of landlord entities including lenders, property managers, brokers, etc. This can be cumbersome to the risk management team that is tasked with keeping certificates of insurance accurate and up to date.
- Finally, to make it easier for your risk management team to comply with insurance requirements after the lease is signed, gather the following information at the time you enter into a lease:
- The year the building was built;
- The construction type (for instance, brick and glass, concrete, steel frame, etc.);
- The number of stories;
- Whether the building is sprinklered; and
- Whether there is a security system in place.
Store this information with your lease, preferably in a lease administration database, so that it is easily accessibly when policies are renewed or changed. I promise you it will be requested numerous times over the life of the lease and you will be glad to have it handy.