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What are the best strategies for determining the right insurance coverage for a commercial lease?

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Insurance is a crucial aspect of any commercial lease, as it can protect you from unexpected losses, liabilities, and lawsuits. However, finding the right insurance coverage for your specific needs and risks can be challenging, especially if you are not familiar with the terms and conditions of your lease agreement. In this article, we will share some of the best strategies for determining the right insurance coverage for a commercial lease, based on the type, location, and use of the property, as well as the responsibilities and obligations of the landlord and the tenant.

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Nick Gray

Executive Vice President - Brokerage Services - Creek CRE

1 Understand the lease clauses

The first step to determining the right insurance coverage for a commercial lease is to understand the lease clauses that relate to insurance, such as the insurance requirements, the indemnification and hold harmless provisions, the waiver of subrogation, and the co-insurance clause. These clauses define the minimum amount and type of insurance that each party must carry, the extent to which each party agrees to compensate and defend the other party in case of a claim, the right of the insurer to recover from the other party's insurer, and the percentage of the loss that each party must bear. You should review these clauses carefully and consult with your lawyer and insurance broker to ensure that you comply with them and that they are fair and reasonable.

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2 Assess the property risks

The second step to determining the right insurance coverage for a commercial lease is to assess the property risks that you face, such as fire, theft, vandalism, natural disasters, equipment breakdown, and business interruption. These risks depend on the type, location, and use of the property, as well as the condition and maintenance of the building and its systems. You should conduct a thorough inspection of the property and identify any potential hazards or defects that could cause damage or loss. You should also consider the value and replacement cost of the property and its contents, as well as the income and expenses that you would lose if the property becomes unusable.

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3 Evaluate the liability risks

The third step to determining the right insurance coverage for a commercial lease is to evaluate the liability risks that you face, such as bodily injury, property damage, personal injury, professional liability, and environmental liability. These risks depend on the nature and scope of your business operations, the activities and behavior of your employees and customers, the contracts and agreements that you have with other parties, and the laws and regulations that apply to your industry and location. You should analyze the potential scenarios and consequences that could result in a claim or lawsuit against you or your business. You should also consider the legal fees and damages that you could incur if you are found liable.

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4 Compare the insurance options

The fourth step to determining the right insurance coverage for a commercial lease is to compare the insurance options that are available to you, such as the types, limits, deductibles, exclusions, and endorsements of the policies. You should look for policies that cover the specific risks that you face, that meet or exceed the lease requirements, that fit your budget and cash flow, and that offer flexibility and customization. You should also look for reputable and reliable insurers that have experience and expertise in your industry and market, that provide excellent customer service and claims handling, and that have a strong financial rating and reputation.

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Justin Kline

Transactional Counsel
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In my decades of experience handling commercial real estate transactions, the involvement of a qualified and experienced real estate broker can provide invaluable assistance to the client in comparison of insurance options (and their respective costs) available for the subject property. Refer the client to one w/ whom you have developed a business relationship early in the process of negotiating required coverages for a lease, renewal or extension.

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5 Negotiate the insurance terms

The fifth step to determining the right insurance coverage for a commercial lease is to negotiate the insurance terms with your landlord and your insurer, such as the amount and type of insurance that each party will provide, the allocation and sharing of the premiums and deductibles, the notification and cooperation procedures in case of a claim, and the modification and renewal of the policies. You should aim for a fair and balanced arrangement that reflects the respective risks and responsibilities of each party, that minimizes the exposure and cost of each party, and that fosters a positive and cooperative relationship between each party.

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6 Review and update the insurance coverage

The sixth step to determining the right insurance coverage for a commercial lease is to review and update the insurance coverage periodically, such as at the time of a lease renewal, extension, or amendment, or when there is a significant change in the property, the business, or the market conditions. You should monitor the performance and adequacy of your insurance coverage, as well as the compliance and satisfaction of your landlord and your insurer. You should also seek feedback and advice from your lawyer, insurance broker, and other experts to ensure that your insurance coverage remains relevant, effective, and competitive.

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Nick Gray

Executive Vice President - Brokerage Services - Creek CRE
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I highly recommend that you continually speak with an experienced commercial insurance professional. Ask them what types of policies they write for businesses similar to yours.

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7 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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What are the best strategies for determining the right insurance coverage for a commercial lease?

1

2

3

4

5

6

7

1 Understand the lease clauses

2 Assess the property risks

3 Evaluate the liability risks

4 Compare the insurance options

5 Negotiate the insurance terms

6 Review and update the insurance coverage

7 Here’s what else to consider

Commercial Leasing

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What are the best strategies for determining the right insurance coverage for a commercial lease?

1

2

3

4

5

6

7

1 Understand the lease clauses

2 Assess the property risks

3 Evaluate the liability risks

4 Compare the insurance options

5 Negotiate the insurance terms

6 Review and update the insurance coverage

7 Here’s what else to consider

Commercial Leasing

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