Building Better Leases Series – Insurance Policies, Waiver of Subrogation, Indemnity, & Exemption

Building Better Leases

Insurance policies

The Lessee must use an insurance company that is licensed in the state where the Premises is located. In addition, the insurance company must carry a rating at least equal to that stated in the Lease. During the Lease, the Lessee is required to keep their insurance policy in effect and provide the Lessor with evidence (insurance certificate) that it exists. If the insurance certificate expires, the Lessee is responsible for providing the Lessor with an updated and/or replacement insurance certificate at least 10 days before the current one expires. In the case that the Lessee fails to obtain an insurance policy, the Lessor may obtain one on their behalf.

Waiver of Subrogation

Subrogation is often practiced in the event of an auto accident. If you are in an accident and the other drive is at fault, your insurance company will pay to have your car fixed, and then they will collect from the at-fault driver’s insurance company to recover the amount they had to pay to fix your car. This practice is performed so the insured does not have to wait for a case/dispute to be settled prior to having their car repaired.

A Waiver of Subrogation is an endorsement that prohibits an insurance carrier from recovering the money they paid on a claim from a negligent third party. The concept in this section is to make as many potential “problems” as possible “insured events” so that instead of the Lessee arguing with the Lessor, the Lessee can submit its claim to its own insurance company. Without a Waiver of Subrogation, the insurance company would pay for the Lessee’s claim and then turn around and sue the Lessor for reimbursement which would defeat the whole purpose.


If any claims arise while the Lessee is occupying the Premises, it is the Lessee’s responsibility to indemnify and defend the Lessor from any third party.

One suggestion is that if you are representing the Lessee, you might try to get the Lessor to strike the word “gross” from the 1st line. This lowers the negligence “threshold”, but increases the risk to the Lessor so don’t be surprised if the Lessor refuses to do so.

Exemption of Lessor and its Agents from Liability

The Lessor is not responsible for: 1) damages to the Lessee’s personal property, 2) damages caused by other tenants, or the Lessee’s loss of profits. The goal is to shift any dispute between a landlord and tenant to the Lessee and its insurance carrier, so it’s important that the Lessee obtains an insurance policy that covers the scenarios listed above. Most of the time this section is not considered or reviewed until damage has occurred. Tenants are always surprised to find that the Lessor is not responsible for damage caused to their personal property, so it’s important to make sure they are informed ahead of time.

Failure to Provide Insurance

In this section, the Lessee acknowledges that without insurance, the Lessor may experience high risks and/or damages that are difficult to estimate. Furthermore, it states that for each month or any portion that the Lessee fails to maintain the required insurance policies for, the Base Rent will automatically be increased by 10% or $100, whichever is greater.

There is a large penalty if the Lessee does not obtain the required insurance or fails to provide evidence of their existing policy. Without this provision, the Lessor would be forced to 1) ignore the problem, 2) obtain insurance on the Lessee’s behalf and back bill them for it (8.5), or 3) serve the Lessee with a 3 day notice (13.1).