In commercial real estate, tenants are usually required to carry some form of insurance. This protects tenants from losses due to injury, natural disaster or expensive repairs. It also helps define responsibilities  to landlords, and other third parties, like customers and employees. While commercial real estate insurance may seem like a simple aspect in a lease, it’s crucial that landlords and tenants truly understand what is expected of one another.

Commercial Real Estate Insurance Truths

Simple Truth #1: Landlord and tenant should carry insurance.

Simple Truth #2: Landlord and tenant should insure their own interests.

Simple Truth #3: Tenant has an interest in having the landlord insure the tenant’s interest.

Huh? Let’s break those down.

In commercial real estate, the tenant is required to have insurance. The landlord should have insurance, but that’s not always the case. There have been many instances when the landlord does not have adequate  .

Let’s look at an example. The lease states that the landlord doesn’t have to carry insurance. However, there are seven paragraphs about tenant insurance, including that if the landlord doesn’t have insurance, the tenant’s insurance will be primary. In this case, the tenant ends up paying an extra premium to get the coverage that the landlord required under the lease.

Building Insurance, Repairs and General Liability

The building shouldn’t be the only thing that the landlord insures. He/she should insure the land that the building occupies and any other landlord-controlled items, like parking lots or the lobby area. This is called property insurance. Property insurance protects the area if there is damage to the building or the land. Think about a fire, a flood or if someone crashes a car into the building. Of course, there are a number of things that can affect the property, and whether an event creates a small or large impact, insurance is crucial.

As a tenant, there are bound to be times when your space needs repairs. If there is a leak due to a broken pipe, you may not be able to work in your space during that time. Even though you’re unable to use your space during repairs, you are still required to pay rent. That is where renters insurance  comes in.

Another form of insurance needed in commercial real estate is general liability. This type of insurance covers injuries and property damage. This covers situations involving a customer, invitee, contractor, employee or someone else who is injured on the property.

Proportionate Share of Insurance

When it comes to insurance, both parties need it. The tenant needs to insure his/her own interest, but the landlord also needs to insure what he/she owns. The only place the landlord gets revenue to make that sort of payment is from the tenant, so the landlord will usually charge the tenant for a share of the insurance cost. Each tenant should pay their proportionate share of the insurance cost.

What ensures that the landlord carries insurance?

The lease!

Remember: The lease could also require the tenant to carry the insurance that the landlord requires, without taking into account what insurance the tenant already has!

Does that sound reasonable? Of course not!

Insurance can be tricky and downright confusing when you’re entering into a commercial real estate lease. That’s why it’s so important to have a commercial real estate attorney work with you to create a lease that’s fair.

When you’re not sure what your lease requires of the tenant and landlord in regards to insurance, let’s set up a time to figure it out!

Disclaimer
The transmission and receipt of information contained on this website does not constitute an attorney-client relationship. Persons should not act upon information found on this website without first seeking professional legal counsel.

Did you know?

Contrary to the online shopping craze, 85% of consumers prefer to shop at a physical store. Timetrade found that:

  • Consumers prefer brick and mortar stores
  • In-store expertise drives purchase volume
  • In-store purchasing preferences span generations
  • Mobile purchasing

Shopping In-store

A major reason shoppers are still physically going in stores is because of the experience. When walking into the location, shoppers use their senses. They see the patterns, feel the fabrics, and smell the fragrance. It’s all about creating an experience. This doesn’t only fall on the retail tenant. It also falls on the landlord – making sure there is adequate parking, clean restrooms and welcoming common areas all play into the experience.

Ripen cited the reasons people shop in-store as opposed to online:

  • Want items right away
  • Protects privacy
  • Save on shipping costs
  • Easier returns
  • See products in person

Think about how you shop. Do you plan a specific day and time to go to a specific store? Sure. Do you walk around a local shop after your date on Saturday night? Yes. You are taking part in impulse shopping – which is a large reason that retail locations are flourishing.

So what?

This is all good news for landlords, tenants and investors. More in-store shoppers mean more money in the tenant’s pockets. A building full of tenants means more money for the landlord. Successful landlords mean new investment properties.

It’s a ripple-down effect. In order to remain successful, all parties must keep up with the ever-changing industry. While name brand and national stores are closing, many retailers across the country are thriving. Through a mixture of tenants including discount retailers, service-oriented businesses and tech shops, commercial real estate is booming.

Warehouses

The explosion of e-commerce has benefited investors and landlords alike. All of those packages that are dropped off at shoppers’ doorsteps each day have to be packaged somewhere. Warehouses and packaging facilities are popping up all over the country. Texas specifically has seen growth in the area of warehouses due to an increase in online shopping.

The Houston Chronicle stated, “Commercial tenants in distribution and consumer goods leased more than 6.7 million square feet of space over the last two years in Houston, a 60 percent increase over the two years prior, real estate service firm JLL reports. Of 27 industrial facilities completed in Houston in the fourth quarter of 2016, 25 were warehouse and distribution spaces, according to market research by CBRE.”

Changes

  • Commercial real estate properties are now including multiple tenants in their property instead of just one.
  • Lease terms are evolving as the type of stores that come into the property are evolving. Month-to-month has become popular for pop-up shops.
  • Knowing how people shop and why they shop that way is beneficial to everyone involved in commercial real estate.
  • While e-commerce is continuing to grow, retailers are realizing the need for a physical location to please their customers and provide a pleasurable experience.

Being flexible and growing with the changes is essential. Call me to learn more about creating a unique commercial real estate lease that works for you.

Disclaimer
The transmission and receipt of information contained on this website does not constitute an attorney-client relationship. Persons should not act upon information found on this website without first seeking professional legal counsel.