Lessor's Risk Only (LRO) Insurance
For owners who lease their commercial building to tenants and do not operate a business inside it — the building, the rents, and the landlord liability.
What Is Lessor's Risk Only (LRO) Insurance?
Lessor's Risk Only, usually written LRO, is the program for an owner whose business is the building itself. You own commercial space and lease it to tenants; you are not the one running the restaurant, the shop, or the office inside it. That distinction changes how the risk is underwritten and how the policy should be built. LRO covers the structure, the rental income it produces, and the liability an owner carries for the common areas, the parking lot, the roof, and the building systems — while your tenants carry their own coverage for their operations and their contents.
Why It Matters
Insuring an LRO building as though the owner operated the tenant's business misprices the risk and can misplace the coverage. Just as important, the lease and the insurance need to agree with each other. Who insures tenant improvements, who is named as additional insured, who waives subrogation, and who is responsible after a loss are all lease questions with insurance consequences — and when the lease and the policy disagree, the owner usually absorbs the difference.
Who Needs It
Owners of leased commercial buildings: strip centers, standalone retail, office buildings, small industrial and flex space, and mixed-use property in the Norman and Oklahoma City metro. If your tenants operate the businesses and you own the walls, LRO is your form.
Coverage Highlights
- Building coverage at an accurate replacement cost
- Loss of rents and business income for the owner
- Premises liability for common areas, lots, and walkways
- Wind and hail deductible structures explained
- Tenant improvement and betterment responsibility clarified
- Additional insured and waiver of subrogation wording
- Equipment breakdown for building systems
Claims We Actually See
- A storm damages the roof and multiple tenants stop paying rent during repairs.
- A customer falls in the shared parking lot and sues the building owner.
- A tenant fire spreads and the lease is unclear about who insures the improvements.
- A rooftop HVAC unit fails and the lease makes the owner responsible for it.
- The building is insured near its purchase price and reconstruction costs far more.
Local Considerations
Central Oklahoma storm exposure drives commercial property pricing here, and roof age plus the wind and hail deductible do most of the work in the quote. Owners of leased buildings also need building values that reflect what reconstruction costs today rather than what the property was purchased for, because underinsurance on a commercial building is discovered at the worst possible time. We also see leases in this market that quietly assign more responsibility to the owner than the owner realized — worth reading before renewal, not after a claim.
Lessor's Risk Only (LRO) Insurance FAQs
What does Lessor's Risk Only actually mean?
It means the policy is written for an owner who leases the building out and does not operate a business inside it. The owner insures the structure, the rental income, and the landlord liability. Tenants insure their own operations, contents, and liability.
Do my tenants still need their own insurance?
Yes, and your lease should require it and specify the limits. You should also be collecting certificates and confirming the additional insured status your lease calls for. A tenant without coverage becomes your problem after a loss.
Who insures tenant improvements?
The lease decides, and it is one of the most commonly mismatched items we find. Improvements can be insured by the owner as part of the building or by the tenant as their betterments. What matters is that the lease and both policies agree, so nothing is double-insured and nothing is uninsured.
Should I insure the building for what I paid for it?
No. Purchase price includes land and reflects market value, not reconstruction cost. After a total loss you are hiring contractors to rebuild at current material and labor rates, plus debris removal and permits. We can run an updated replacement cost estimate rather than renewing the same number year after year.
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Information is general in nature and may not reflect your specific situation. Contact us for personalized guidance.
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