The insurance clause lists the policies each side must carry, the minimum limits, and how proof of coverage is delivered. In a typical industrial net lease the landlord insures the building and bills you for the premium, while you insure your own liability, inventory, equipment and improvements and name the landlord as an additional insured.
What this clause does
Insurance is how a lease turns a disaster into a claim instead of a lawsuit. The clause assigns each risk to a policy: the building shell, your racking and inventory, a forklift accident in the truck court, a fire that shuts your operation down for months. It also sets minimum limits, acceptable carrier ratings, and how and when you prove the coverage is in force.
In most industrial net leases the landlord buys the property policy on the building and passes the premium through to you as an operating expense. You buy commercial general liability, coverage on your own property and improvements, and usually business interruption. You name the landlord, and often its lender and property manager, as additional insureds on your liability policy. On a multi-tenant project, the building premium is typically split by your share of the square footage.
What you will be asked to carry
Commercial general liability is the core requirement. Limits of $1 million per occurrence and $2 million in the aggregate are a common floor, and larger distribution buildings frequently add an umbrella policy on top. The lease will usually require your policy to be primary, meaning it pays before the landlord's own liability coverage is touched for claims that come out of your operation.
Coverage on your contents is yours to buy. That means inventory, racking, conveyors, forklifts, office furniture and any improvements you paid for. You are the one who can put a realistic price on replacing your equipment, and the landlord's building policy will not pay for any of it.
Business interruption, sometimes called business income coverage, replaces lost profit and pays continuing expenses if a covered loss shuts you down. For a distribution center serving customers on tight delivery windows, this is often the policy that keeps the company whole while the building is repaired. Depending on your operation, the landlord may also ask for auto liability for yard vehicles, workers' compensation, pollution or product liability coverage.
The landlord's policy, and why your share can jump
The landlord's property policy covers the building at replacement cost and often includes rent loss coverage, which protects the landlord's income if a casualty makes the building unusable. Earthquake and flood coverage are separate decisions, frequently driven by the landlord's lender. In California, adding earthquake coverage can raise the premium you reimburse by a meaningful amount.
Property premiums have climbed sharply in recent years as carriers price in wildfire, wind, flood and earthquake exposure. Because you reimburse that premium in a net lease, ask for the last few years of insurance costs before you sign and build increases into your budget. Ask how deductibles are handled, too. Some leases pass deductibles through to tenants, and an earthquake deductible is often a percentage of the building's value rather than a flat amount.
Your use matters as well. High-piled storage, plastics, aerosols, lithium batteries and other hazardous commodities can raise the building premium, and most leases make you pay any increase your use causes. Tell the landlord and your broker exactly what you will store, and at what rack height, before you sign.
Where it goes wrong
The most common failure is paperwork. Certificates of insurance come back with the wrong named insured, a missing additional insured endorsement, or limits that do not match the lease. Many landlords will not hand over keys until a correct certificate arrives, so an error here can push back your move-in.
The second failure is drift. Companies change insurance brokers or carriers mid-term, and the new policy quietly drops the landlord. If a claim lands during that gap, you can be in default and uninsured at the same moment. Many leases let the landlord buy coverage on your behalf and bill you for it, sometimes with a penalty on top.
The third is treating the lease minimum as the right number. The lease sets a floor, not a recommendation. Size your coverage to your own risk, including the value of inventory you hold at peak season.
How to handle it
Send the insurance section to your insurance broker before you sign, not after. Ask them to confirm in writing that you can meet each requirement at a reasonable cost and to flag anything unusual, such as a carrier rating your current insurer does not have. Then have a real estate attorney review the full lease, because the insurance clause works together with the indemnity, waiver of subrogation and damage and destruction sections.
If you are the tenant
- Give the insurance and indemnity sections to your insurance broker before signing and get written confirmation that you can comply at a reasonable cost.
- Ask for three years of the building's premium history and the current deductibles, including any earthquake deductible, so you can budget the pass-through.
- Negotiate a limit on how much of any property deductible can be billed to you for a single loss.
- Disclose your commodities, rack heights and any hazardous materials up front so a premium increase does not surprise you later.
- Calendar your policy renewals and send updated certificates before they expire, especially after switching carriers.
If you are the owner
- Check every certificate against the lease: named insured, additional insured endorsement, limits and carrier rating. Hold possession until it is right.
- Request updated certificates every year and after any change in the tenant's carrier or ownership.
- Set required limits against the worst realistic loss at your building, and consider product, pollution or cyber coverage based on the tenant's operation.
- Bid your property policy at renewal and tell tenants early about premium changes they will reimburse.
Go deeper in Justin's books
Both books walk through leases chapter by chapter, from the tenant side and the owner side.
Generally, the total amount of insurance coverage should exceed the worst-case or multi-accident scenario for your building.
Common questions
Who pays for property insurance on an industrial building?
In most industrial net leases the landlord buys the property policy on the building and bills the premium back to tenants as an operating expense. You pay for your own liability coverage and for insurance on your inventory, equipment and improvements. In a gross lease the premium is built into your rent instead.
What does it mean to name my landlord as an additional insured?
It extends your liability policy to protect the landlord against claims arising from your operations at the property. The landlord will want to see the actual endorsement, not just a line on the certificate. Your insurance broker can issue it, often at little or no added cost.
Do I need business interruption insurance if my landlord carries rent loss coverage?
In most cases, yes. The landlord's rent loss coverage protects the landlord's income, not yours. Business interruption coverage replaces your lost profit and continuing expenses while your operation is down.
General information about how industrial leases commonly work, not legal advice. Every lease is different: have a California real estate attorney review yours before you sign.