Lease agreements are one of the most common sources of commercial insurance requirements — and one of the most overlooked. Most commercial landlords require tenants to carry specific coverages, limits, and endorsements as a condition of the lease. Agents who help clients understand and meet these requirements provide real value and reduce E&O exposure.
A standard commercial lease insurance requirement section typically specifies:
• Commercial general liability limits (usually $1M per occurrence / $2M aggregate minimum) • Property coverage on the tenant's business personal property and any improvements • Workers compensation coverage if the tenant has employees • The landlord named as an additional insured on the GL policy • Waiver of subrogation in the landlord's favor • Primary and noncontributory language • Evidence of coverage in the form of an ACORD 25 certificate with the landlord listed as certificate holder
When a tenant builds out leased space — adding walls, fixtures, flooring, lighting, or other permanent improvements — those improvements become part of the building and typically belong to the landlord at lease end. But until then, the tenant has an insurable interest in them.
Tenant improvements and betterments (TIB) should be covered on the tenant's property policy. The coverage amount should reflect the actual cost to replace the improvements — not the building's market value. Agents who don't ask about tenant improvements routinely underinsure this exposure.
Lease insurance requirements sometimes conflict with what a standard commercial policy provides. Common conflicts:
• The lease requires a $2M per-occurrence GL limit; the standard policy provides $1M • The lease requires the landlord to be named as additional insured for completed operations; the policy's AI endorsement only covers ongoing operations • The lease requires 30-day cancellation notice; the standard policy does not commit to this
Agents should read the lease's insurance requirements carefully and compare them to the policy before issuing a certificate. Issuing a certificate that misrepresents the coverage is a serious E&O exposure.
Standard GL policies include a "damage to premises rented to you" sublimit — typically $100,000 — that covers damage caused by the named insured to the rented premises. This covers scenarios like a tenant's employee accidentally starting a fire that damages the building.
The $100,000 default sublimit is often inadequate for tenants in larger spaces. Agents should review this sublimit relative to the space's replacement cost and request a higher sublimit if appropriate — this is often available at minimal additional cost.
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