Commercial Landlord Insurance

​Why is it Important?  
​Well, let’s start with the building/property. There are many perils that could lead to a loss. Below are just a few common perils that are typically covered (subject to deductible of course):

  • Damage Caused by Weather
  • Fire & Smoke Damage
  • Vandalism
  • Water Damage 
  • Building Damage

​To receive a FREE copy of The Landlord's #1 Resource  Guide for Building Insurance, please fill out the  information below.

​These are just a few common property exposures. You can also add endorsements to broaden coverage and tailor the policy to your needs. 

​From a liability standpoint, you could be brought into a lawsuit by not only your tenant, but also one of your tenants customers or guests. The most common on the liability side would be Slip and Fall exposure. This is why a policy that has property as well as general liability is very important to have. 

Underwriting Rating Information
Several factors are going to determine eligibility and rating. Below are some of those factors. 

​Building Details: Insurance companies like new buildings. In fact, some insurance companies will not write older/historic buildings. They also rate different construction types. For example, masonry non-combustible is preferred by carriers over frame construction.
 
Location: Insurance companies rate buildings in rural areas higher. They also want to know the location of the nearest fire hydrant and the ISO rating of the responding fire department.
 
Building Updates: Insurance companies like to see updates. Without updates on older buildings, they might not insure or limit coverage. It is important to know when HVAC, plumbing, electrical, and roof were updated.
 
Occupancy Percentage: Insurance companies do not like vacant buildings, so they will want to know what percentage of the building is vacant. Insurance companies typically like to see 70% occupancy. 
 
Loss/Claims History: Your claim history will impact your rate. If you have claims and plan to get quotes from other agents, request loss runs from your current agent.
 
Type of Tenant: Certain businesses occupying your building could limit the number of insurance companies that will insure the property. 
 
If you are purchasing a building, gather as much of this information from your realtor to get an accurate quote from your insurance agent. The claim data will not impact you since it's for a different named insured, but it might still be good information. For example, are there numerous vandalism claims? 

Ways to Reduce Insurance Premiums
Like rating, insurance costs are determined by several factors. Some are out of your control (like location, construction material, and building year), so let's focus on what you can control.

  • Building Updates
Having a new roof can go a long way. An old roof is more susceptible to leaks, potentially leading to property damage or, worse, a puddle of water that someone slips on. Hard to believe a small drip could turn into a $1M claim, but it has happened. Old plumbing systems and electrical systems are not as dependable as new ones. If you are updating the plumbing, consider installing a sprinkler system. Underwriters love to see updates. Not only does it say a lot about the building, but it also says something about the owner of the building.

  • Increase your Deductible
You have heard this one before, so it's probably nothing new. You also probably know that sometimes this works, and sometimes it doesn't. Increasing your deductible can work with some insurance companies and underwriters, especially if the increase is significant. Insurance companies spend a lot of money on the administrative side of the house on small claims, so knowing you are not going to file a small claim could result in saving on premiums.

  • Safety First
There are lots of hazards that could lead to injury. Adequate lighting, ensuring railings are sturdy and the building is up to code, and displaying signs warning of potential hazards are all great places to start. A property owner must ensure a safe environment, including the parking lot. If a tenant reports a hazard, make it a top priority to get it fixed. Failure to do so can constitute negligence. 
​
  • Look at Building Limits
Some insurance companies will increase building limits each year. It is called inflation guard. Simply put, they increase the building valuation based on inflation. Some building owners do not pay attention to this, and year after year, the building limit might be higher than the actual cost to replace the building. I am not saying call your agent and reduce coverage but be aware of how much it would cost to replace your building. I would ask them to show you a replacement cost estimate showing how they got that number. Verify square footage, building features, and construction material. Your building can be insured at Replacement Cost or Actual Cash Value. Replacement Cost is what it sounds like, the cost to replace your building. Actual Cash Value (ACV) sounds good, but it is Replacement Cost minus depreciation. Although Replacement Cost (RC) costs more, come claim time, you will be much happier you have it. I always recommend Replacement Cost, but some building owners want ACV because it cost less. If you decide to reduce coverage to reduce cost and go the ACV route, ensure you understand the implications (depreciation, co-insurance, etc.).

  • Ask for Credits
You can also ask for credits to bring down the premium. Since insurance is highly regulated, underwriters must have justification to apply credits. Building updates and safety features are justifications for credits if available.

  • Work with an Independent Agent
An Independent Agent is not beholden to any one company and is essentially a broker with access to many insurance companies. By working with them, you cast a large net on the marketplace to ensure you get the best premium and coverage. I would also recommend going with an experienced commercial insurance agent. 

Ways to Reduce Your Risk
  • Certificates with Proper Risk Transfer
Make sure your tenant carries their own property and general liability insurance. Require them to send you a certificate of insurance and evidence of property insurance reflecting this coverage. I would recommend that you require them to list you (the building entity) as Additional Insured on their policy. I would also require the following endorsements, Waiver of Subrogation (WOS), Primary & Non-Contributory (PNC), and a 30-Day Notice of Cancellation. It might seem like a lot to ask, but these are quite common in the industry.

  • Screen Tenants Thoroughly
You are essentially letting tenants move in and conduct business in possibly one of your most significant investments. Ask for references and check them before signing off on the lease agreement. I had one building owner tell me to require a bank reference, which I thought was very sound advice. Also, know that certain types of tenants could impact who will insure you. Keep your agent up to date on any changes. Getting that revenue on the books is nice, but make sure it doesn't cost you in the long run.

  • Listen to your Tenants & Build a Relationship
If they have problems, especially with safety concerns, listen and act on them. Try to build a relationship with your tenants. A birthday or holiday card with a gift certificate inside thanking them for being your tenant can have a substantial impact. It can cost very little and shows you care.

  • Handle Evictions Very Carefully
Always consult with an attorney on evictions. They are knowledgeable when it comes to this subject. Not only do they know the law, but they also know where most judges stand on evictions from past cases.

  • Make Your Property Handicap Accessible
It is common for people to seek out places that are not handicap accessible to present with a lawsuit. A building owner client of mine was sued for this reason, and the insurance company simply settled. Because of the suit, my insured's renewal cost increased the following year. Interestingly, this person also sued several other businesses in the area resulting in a big payday.

  • Get Everything in Writing
Every person in your building should have a lease agreement, no exceptions. No handshake deals or, "I know him from church, and he's a really nice guy." When an insurance adjuster is assigned to a claim involving a building owner and tenant, they typically ask for a copy of the lease agreement. It makes things so much easier if you have one. From my experience as an agent, if you make the insurance adjuster's life easy, things move a lot quicker, and everyone is happy.

  • Business Income
Businesses are in business for one reason. That is to make money. Suppose a covered peril occurs, for example a fire; loss of rent revenue could put your investment in the red. Always consider adding Business Income to your policy. To have this added to your policy, underwriters will want to know the annual rent rolls.

  • Excess Liability or Umbrella
If you break down where the premium is coming from between the property and the general liability, it is most likely the property. So getting an Excess Policy or Umbrella to go over your underlying $1M general liability limit isn't going to be very costly. I am sure any financial advisor would advise you to increase your limit to protect your assets.

  • Contractors
Make sure if you hire contractors to work on your property, or do any maintenance, they have liability insurance. Have the contractor list you as an additional insured on their General Liability Insurance.  
To receive a FREE copy of The Landlord's #1 Resource Guide for Building Insurance, please fill out the information below.