Who needs what and why
When it comes to commercial real estate, owners and tenants have at least one thing in common: both want to protect their investment. To that end, insurance is a necessity—but all too often, it becomes the elephant in the room. Everyone knows it’s there, but few ever want to talk about it because it’s overwhelming, confusing, and somewhat negative at a time when everyone is energized about positive possibilities.
Ignoring the insurance issue, though, can mean very expensive and legally complicated consequences for both parties. On the other hand, understanding what’s required can prevent lots of last-minute scrambling and help develop a smarter business plan. Here, then, is a rundown of who needs what and why.
Insurance needs for the CRE owner
The trick with insurance is creating a balanced plan that is fiscally sound and provides appropriate coverage. To that end, it’s imperative for the investor to consider what sort of coverage works best for each specific property. Property along the coast, for example, has different risk factors than one located further inland or in another part of the country.
First and foremost at the top of any insurance list are fire insurance and liability insurance. From there, depending on the needs of the owner and/or the property, other insurance plans can be added:
- Flood insurance, especially if the property is located in a designated flood zone or if flooding is an issue in the property’s location.
- Terrorism insurance in case the property is a terrorism target risk.
- Builder’s risk insurance if the property is vacant or mostly vacant and will be renovated.
- General contractor insurance if the owner will act as the general contractor and pull his/her own permits for the work.
- Workers compensation insurance if the owner plans to hire on-site employees, such as maintenance workers.
Insurance needs for the CRE tenant
As important as it is for the owner to protect the entire physical property, it’s equally essential for the tenant to provide coverage for the actually leased space. Commercial renters insurance generally covers damage or destruction to property caused by fire, vandalism, and most weather-related issues. This property can include office and manufacturing equipment, inventory, and business records.
From here, a tenant can look into additional coverage, some of which are identical to that carried by the owner, such as worker’s compensation and flood insurance policies. While not mandatory, some owners may require the following options:
- Business liability insurance not only protects the tenant should a customer become injured on the leased property, but it also protects the owner. Because the owner does not want to be held responsible for the tenant’s mistakes, he/she may ask to see the tenant’s certificate of liability insurance at the time of the lease signing. No certificate, no lease.
- Business interruption insurance assists the tenant in paying bills, including rent, if the business is not generating income for a variety of reasons, such as theft, vandalism, or even sewer/water line repairs by the city.
Ensuring you’re insured correctly
The last thing anyone wants is for the elephant in the room to destroy an investment or leasing opportunity. Whether you’re new to the CRE market as an investor/owner or a tenant, it’s important to work with a team of professionals who are acutely aware of commercial properties and their insurance needs for specific locations. With more than 30 years of experience in South Florida, Morris Southeast Group is that team.
To learn more about owner and tenant representation and what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
Tags: commercial real estate, CRE Insurance For Owners And Tenants, fire insurance, General contractor insurance, Terrorism insurance, Workers compensation insurance
