Commercial Lease Landlord Insurance Requirements – 1 Insurance Clauses in Commercial Leases (Gross and Net) Jeffrey C. O Brien Mansfield Tanick & Cohen, P.A. Mansfield Tanick & Cohen, P.A.
2 A. Introduction. A signed commercial lease is the culmination of many negotiations between landlords, tenants, brokers (sometimes) and their respective legal counsel. Each party seeks to transfer more responsibilities and obligations for the leased premises to the other party. Of course, it was impossible for the parties to eliminate all the risks associated with the lease, and at some point during the negotiation process, the parties reached an impasse in their efforts to shift the burden. That’s when insurance coverage comes into play. These materials will discuss the types of insurance that both landlords and tenants can purchase for gross and net leases. The type of commercial lease will affect both landlord and tenant insurance requirements. There are two types of commercial leases: gross leases and net leases. A gross lease is a commercial lease in which the landlord pays property taxes, insurance, and building maintenance. However, in a modified master lease, the lessee may be required to assume some insurance obligations. An example of such a clause is as follows: Insurance. During the Lease Period, the Lessee shall, at its own expense, insure the present or future buildings and any other improvements in the Lease against fire, vandalism, vandalism and normal extended risks by an insurance company acceptable to the Lessor Net depreciation not less than two million dollars ($2,000,000.00). 2
Commercial Lease Landlord Insurance Requirements
3 The lessee must at all times during the rental period purchase fire insurance at his own expense with additional coverage for fixtures, goods and other personal property owned by the lessee or placed on the leased premises at a minimum cost of twice as much. Millions of dollars ($2,000,000.00) before depreciation. During the lease term, the tenant shall at all times maintain, at its own expense, public liability insurance covering the tenant and the landlord with a minimum limit of two million dollars ($2,000,000.00) for personal injury or death and five million dollars ($5,000,000.00) for personal injury or death in the event of an accident Three Hundred Thousand Dollars ($300,000.00) in property damage resulting from any incident on the Rental Premises, including any sidewalks or driveways on or near the Rental Premises. Landlord may, at its option, obtain or renew such insurance if Tenant fails, is negligent, or at any time refuses to insure such buildings and improvements and maintenance of the rental property. The tenant has until the first day of the calendar month following the payment made to the landlord to repay the landlord for the payment. All insurance claims here must be filed with a responsible insurance company licensed to do business in Minnesota and must meet industry standards for the Twin Cities restaurant industry in terms of coverage and amounts. All such policies or certificates of insurance evidencing such coverage shall be deposited with the Landlord and retained during the Lease Period. Policies of insurance required by this section shall contain undertakings by their respective insurers that such insurance will not be terminated or materially altered in coverage for at least thirty (30) days. Upon written notice to Landlord, Tenant shall furnish Landlord with reasonable evidence of replacement or extension of any expired policies and payment of premiums relating thereto. All such insurance shall insure certain interests of the lessor, lessor’s mortgagees and lessees, and shall provide that in the event of loss or damage the proceeds of the insurance shall be paid to the lessor, as lessees performing the following Guarantee of obligation: to repair, rebuild or rebuild the rental premises described here. 3
The Renewal Timeline For Commercial Leases
4 The opposite of gross rent is net rent. In a net lease, the lessee is responsible for paying some of the additional costs associated with the property. There are three types of net renting: single net, double net and triple net. Under a net lease, the lessee pays rent and property taxes. For double net rent, tenant pays rent plus property taxes and insurance. Under a triple net lease, the lessee pays rent plus property taxes, insurance, and maintenance. A typical insurance clause in a triple net lease agreement is as follows: Tenant shall maintain reasonably satisfactory public liability insurance in form and substance to the landlord’s reasonable satisfaction with an insurance company licensed to do business in the state, subject to a minimum limit of liability is two million US dollars ($2,000,000), with a single total limit. The Landlord (and if the Landlord so requests, the Landlord’s Mortgage) shall be named as additional insureds, and such insurance shall be primary and shall not be entitled to contribution from similar insurances maintained by the Landlord. Tenants are also required to purchase, at their own expense, insurance covering (i) glass breakage of the property, (ii) improvements other than the tenant’s original leasehold improvements to the premises, personal effects, supplies and equipment for an amount equal to their replacement value, and (iii) leasehold LIABILITY OF PERSON UNDER THE INDEMNIFICATION AND DEFEND AGREEMENT CONTAINED IN THIS SECTION. If Tenant elects not to purchase such insurance, Tenant agrees to indemnify, defend and hold Landlord harmless from any claim. The amount of insurance for any insurance maintained by Tenant under this Lease shall be adjusted by Landlord in consultation with Tenant at the end of every three (3) years of the Lease Term to such amount as Landlord deems commercially reasonable. Tenant shall provide Landlord with a copy of the policy certifying that Tenant shall maintain the required insurance under this Agreement. Such insurance shall ensure that landlord and landlord’s mortgagor give at least thirty (30) days’ notice prior to any cancellation, non-renewal or change. If the Lessee does not purchase insurance in accordance with this requirement, the Lessor may purchase such insurance at the Lessee’s expense. Failure to provide the landlord with a copy of these policies will be considered a tenant’s failure to obtain the required insurance. Tenant agrees not to maintain or store in or around the Premises any material that would damage in any way or void any insurance that Tenant is required to maintain. If the lessee uses the placement resulting in a value increase of 4
5 Insurance of the land or building, the Lessee is responsible for paying such additional costs. Landlord and Tenant hereby release from any liability or liability (to each other or to any person by way of subrogation or otherwise by or against them) for any loss or damage for any loss or damage covered by property insurance or customary policy, pursuant to this Lease, Even if such loss or damage is caused by the fault or omission of the other party or any person for whom such party may be responsible, systems, installations or piping are in operation, stop, leak or operate in or around the building, and Tenant agrees to store in All property in the lease is at the tenant’s risk and it is the tenant’s responsibility to have adequate insurance to cover that risk. Tenant agrees to be harmless from and against all claims, actions, liabilities, and damages of any nature and kind, and all costs and expenses, including attorneys’ fees, (collective liability) arising out of any event on the Premises (i), (ii )) arising in whole or in part during the use and occupancy of the Premises, (iii) in connection with the business carried on by the Tenant on the Premises, or (iv) as a result of any act or omission of the Tenant, its agents, employees, sub-lessees, Franchisees, licensees or contractors. Tenant further agrees to indemnify Landlord from any liability arising out of Tenant’s breach of this Lease, including failure to comply with applicable environmental legislation. This indemnity shall survive the termination of this lease. Landlord agrees to defend Tenant against any and all claims, actions, damages, or liabilities of any kind and nature, and all costs and expenses, including reasonable attorneys’ fees, arising out of any accident to the Building (other than the Premises) to the extent, Attributable to the negligence and willful misconduct of the lessor, its agents or employees. B. Fire or accident insurance (All Risk) There are two types of commercial property insurance. The named risk policy only covers these
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