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How do you negotiate lease agreements with tenants who require specialized insurance or liability coverage?

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Negotiating lease agreements with tenants who require specialized insurance or liability coverage can be challenging for commercial landlords. You want to protect your property and avoid liability, but you also want to attract and retain tenants who have specific needs and expectations. How can you balance these competing interests and reach a mutually beneficial agreement? Here are some tips to help you navigate this process.

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Paul Ramos

Vice President & Cofounder at SciTech Insurance Agency

1 Assess the tenant's insurance needs

The first step is to understand what kind of insurance or liability coverage your tenant needs and why. Different types of businesses may have different risks and requirements, such as environmental, professional, product, or cyber liability. You should also consider the nature and extent of the tenant's operations, the value of their equipment and inventory, and the potential impact of a loss or damage on your property. By assessing the tenant's insurance needs, you can determine what level of coverage is reasonable and appropriate for your lease agreement.

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Paul Ramos

Vice President & Cofounder at SciTech Insurance Agency
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Many insureds do not realize that the landlord's boilerplate contract agreement is always skewed in favor of the landlord and may include insurance requirements such as making the tenant responsible for the hvac system. It is important to make sure that insured is aware of these requirements and that they have adequate property limits in place, including tenants betterment and improvements coverage and mechanical breakdown coverage.

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2 Review your own insurance policy

The next step is to review your own insurance policy and see what it covers and excludes. You should also check if your policy has any limitations or conditions that may affect your ability to lease your property to certain tenants. For example, some policies may exclude or limit coverage for certain activities, such as hazardous materials, firearms, or liquor sales. You should also look for any clauses that may require you to notify your insurer or obtain their consent before leasing your property to a tenant who requires specialized insurance or liability coverage.

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3 Negotiate the insurance terms

The third step in the process is to negotiate the insurance terms with your tenant. It's important to reach an agreement that satisfies both parties and minimizes the risk of disputes or lawsuits. Negotiations should cover the amount and type of insurance or liability coverage that the tenant must obtain and maintain throughout the lease term, as well as the proof of insurance or liability coverage that must be provided to you before and during the lease term. Additionally, you should discuss endorsements or additional insureds, deductibles or self-insured retentions, subrogation or waiver of subrogation rights, and indemnification or hold harmless clauses. All of these should be agreed upon in order to protect you and your property in case of a claim or loss.

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Paul Ramos

Vice President & Cofounder at SciTech Insurance Agency
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I advise my business tenant insureds to always have their legal counsel review the lease agreement prior to signing it. I will also ask them to let me conduct a thorough review and will advise them accordingly of what their current insurance program includes. In many cases we may have to add certain endorsements their existing coverage. There may also be cases where I may advise my insured to "push back" in terms of omitting certain conditions that may be financially detrimental to my insured.

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4 Draft and review the lease agreement

The final step is to draft and review the lease agreement and make sure that it reflects the agreed-upon insurance terms. You should also consult with your legal counsel and your insurance broker to ensure that the lease agreement is clear, enforceable, and compliant with the relevant laws and regulations. You should also avoid any ambiguous or contradictory language that may create confusion or conflict in the future. Finally, you should have both parties sign and date the lease agreement and keep a copy for your records.

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5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Paul Ramos

Vice President & Cofounder at SciTech Insurance Agency
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I always recommend to my insureds prior to when they sign a lease as a tenant, to also allow me to review the terms and conditions of the lease. I point out to them, that although I am not an attorney, I have many years of experience in contract review. I look for things that may be detrimental to my insured's interest and can usually point out a need for a mutual indemnity clause. I always recommend that my insured have their legal counsel review the contract before they sign it.

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How do you negotiate lease agreements with tenants who require specialized insurance or liability coverage?

1

2

3

4

5

1 Assess the tenant's insurance needs

2 Review your own insurance policy

3 Negotiate the insurance terms

4 Draft and review the lease agreement

5 Here’s what else to consider

Commercial Leasing

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How do you negotiate lease agreements with tenants who require specialized insurance or liability coverage?

1

2

3

4

5

1 Assess the tenant's insurance needs

2 Review your own insurance policy

3 Negotiate the insurance terms

4 Draft and review the lease agreement

5 Here’s what else to consider

Commercial Leasing

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