Building Better Leases Series – Insurance: Payment and Liability

Building Better Leases

After being invoiced, the Lessee has 10 days to pay the insurance premiums to the Lessor.

Prospective Lessees are advised to:

  1. a) have his or her insurance agent review all of Paragraphs 8 and 9 (provide the agent with copies) to insure that the required insurance can be obtained at a reasonable price
  2. b) obtain information concerning the historic premiums paid by the Lessor as part of the due diligence the Lessee performs prior to signing the Lease.

Liability Insurance

Carried by Lessee

The Lessee is responsible for obtaining and maintaining a general liability insurance policy providing $1,000,000 of coverage per occurrence with $2,000,000 of coverage in the aggregate. The Lessor should be added to the Lessee’s policy as an additional insured. In the case that the Lessee needs to use their insurance, it will be used first (prior to the use of the Lessor’s insurance) so that the Lessor’s insurance is only used after the Lessee’s insurance has been exhausted.

Before solidifying their insurance, the Lessee should determine what amount of insurance coverage is most appropriate and only use what is required in the Lease as a minimum. In order to do this, they should consult their insurance agent to verify that they can meet all the required minimum insurance requirements.

Carried by Lessor

The lessor should also obtain a liability policy. Some landlords don’t bother to get this “second” policy with the rationale that the tenant is getting one and therefore it’s not necessary for them to get one as well. This is a bad idea for two reasons. First, the tenant’s policy might fail or be cancelled without the landlord being aware which would leave him without coverage. Second, it makes more logical sense to have two policies rather than one considering today’s litigious society.