REALWorld Law

Commercial leases

Insurance

Who pays the cost of insuring the real estate which is the subject of a lease and what events causing damage will usually be covered by the policy?

United States

United States

Except in the case of ‘ground leases’, it usually falls upon the landlord to insure the building against fire and other types of damage (subject to reimbursement of premiums through the shared operating expenses mechanism whereby all of the tenants in a building or development proportionately share the cost of maintaining and operating the common facilities). The tenant will be responsible for obtaining general liability insurance and property damage insurance with respect to the leased premises and tenant’s property. Tenants are often required to procure business interruption insurance and insurance covering injury to employees and workers. Insurance requirements for coverage related to employees and workers may vary from jurisdiction to jurisdiction. With ‘ground leases’ and certain types of ‘net lease’, the tenant will be directly responsible for insuring the entire leased premises at its own expense. In ‘net leases’ in principle the tenant is responsible for the cost of operating, insuring and paying taxes on the real property. A ‘ground lease’ is a sub-specie of net lease where the tenant is given rights to develop a parcel of land leased to it.

The precise events which are covered by the insurance in question, and the extent of any exclusions, vary according to the insurance market in which the property is located, the type and use of the property, and the specific terms of the lease negotiated by the landlord and tenant.