You own a six-unit strip center in Norman. A tenant’s customer slips on a wet floor inside a nail salon and sues, naming the salon and you, the owner. Two months later, a grease fire in the café next door spreads smoke through three units, and the café’s owner says their insurance lapsed in the spring. A commercial landlord’s own policy is built to protect the building and the owner. It isn’t built to absorb every tenant’s risk. That’s what tenant insurance requirements in the lease are for, and why collecting proof matters as much as writing the requirement.

Why isn’t my building policy enough?

A landlord’s commercial property policy, often written as lessor’s risk only, generally covers the building itself and the owner’s liability as the property owner. It typically doesn’t cover:

  • The tenant’s inventory, equipment, furniture or improvements they paid for
  • The tenant’s lost income if they have to close
  • Injuries caused by the way the tenant runs their business inside their space

Without tenant requirements, a tenant’s loss or lawsuit can end up pointed at the owner, and the owner’s policy and loss history absorb it. Our lessor’s risk insurance page explains how that coverage is built for owners who lease to businesses, and owners with several buildings may find our real estate investor insurance page closer to their situation.

What insurance do commercial landlords usually require?

Requirements vary by property and tenant, but a typical commercial lease asks for:

  • Commercial general liability, often $1 million per occurrence and $2 million aggregate, with the landlord named as additional insured
  • Property coverage for the tenant’s own contents and improvements, so their build-out isn’t left to the landlord’s policy
  • Business income coverage, so a tenant can keep paying rent after a covered loss
  • Workers’ compensation if the tenant has employees
  • Liquor liability if the tenant serves alcohol
  • Commercial auto if the tenant’s vehicles use the lot regularly

Riskier uses deserve a closer look. Restaurants are a good example: NFPA research found U.S. fire departments responded to an average of 7,410 structure fires a year in eating and drinking establishments from 2010 to 2014, with $165 million a year in direct property damage. One tenant’s kitchen can affect the whole building.

What belongs in the lease itself?

The lease is where insurance requirements actually live. A certificate can’t add something the lease didn’t ask for. Common lease provisions include:

  • The specific coverages and minimum limits required
  • Additional insured status for the landlord and, if applicable, the property manager and lender
  • A waiver of subrogation, so insurers don’t sue the other party after a loss
  • A requirement to deliver a certificate before move-in and at every renewal
  • Notice to the landlord if coverage is canceled or not renewed
  • What happens if the tenant fails to comply, such as a default or the right to buy coverage and charge it back

Having a real estate attorney review lease language is common practice. We can help with the insurance side: what limits are reasonable for the property and the tenant’s type of business.

How should I collect and track COIs?

A certificate of insurance shows what a tenant says they carried on the day it was issued. It’s not a promise the policy stays in force. A few habits keep it useful:

  • Collect it before keys change hands, not after
  • Compare it to the lease: coverages, limits, additional insured wording, and dates
  • Ask for the additional insured endorsement, not just a checked box on the certificate
  • Put every tenant’s renewal date on a calendar, and request the new certificate before the old one expires

Our archive pieces on why tenants should carry their own insurance and what certificates of insurance do and don’t prove cover more of the details.

Here’s an illustration, not a quote

Say the café’s uninsured fire causes $90,000 of smoke damage to the building and two neighboring units. The landlord’s property policy might pay the building damage after a deductible, but now that claim sits on the landlord’s loss history, and recovering from an uninsured tenant may go nowhere. If the café had carried the required liability and property coverage, and the lease included the right provisions, the landlord’s insurer might have had someone else’s policy to pursue.

Let’s line up your lease and your policy

If you own retail, office or mixed-use space, take a look at our lessor’s risk coverage and our real estate investor insurance options, or start a commercial property quote. You can also call (405) 701-5368. We’ll look at your building policy and your tenant requirements together.

This article is general information about how coverage typically works, not advice about your specific situation. No two insurance contracts are the same, and your policy is the only thing that says what you have. If you’d like someone to read it with you, that’s what we’re here for.