Commercial leases in New York City are notoriously long, complex documents. They come with many different clauses and terms, such as holdover clauses, sublease and assignment clauses, rent escalations, and more. As a commercial tenant, you should familiarize yourself with insurance and liability requirements in your commercial lease. While they come with complexities, they are essential to understand.
For the landlord, these requirements protect the building and property from damage or loss due to fire, natural disasters, and other hazards. Moreover, the landlord usually requires the tenant to carry liability insurance covering any damage or injuries caused by the tenant’s operations on the property. The landlord may also demand the tenant to insure their personal property to protect it from damage or loss.
For the tenant, insurance requirements help protect their business from potential financial losses due to accidents or other unforeseen events. These requirements may also have the landlord carry insurance on the property, covering any damage or injuries caused by the building or property itself.
In a commercial lease, both the landlord and the tenant should clearly understand the insurance and liability requirements. These requirements can include the types and amounts of coverage needed, who is responsible for obtaining and maintaining the coverage, and what will occur in the event of a claim.
How it Works
Commercial liability insurance protects insured parties from liability in third-party claims concerning property damage or personal injury.
In a lease, an insurance clause will describe the type and amount of insurance the tenant must purchase. The amounts of insurance are a business term and may be negotiable.
The tenant will then make a copy of the insurance clause and send it to their insurance broker for a quotation. The insurance broker can issue a temporary certificate of insurance within a few hours.
New York City landlords require their tenants to have liability insurance. Tenants may only move into their leased space once the insurance policy is active.
Policies must cover bodily injury, personal injury, and property damage. Additionally, the policy must have a broad contractual liability endorsement naming the tenant as insured and protecting the landlord, the landlord’s employees, and the managing agent. Furthermore, the policy should also cover mortgagees or lessors interested in the building.
The size of the space, the type of business tenant, and the relevant party’s financial strength will determine the policy’s amount and scope.
Commercial liability insurance is required because landlords are at risk of third-party claims arising from the acts of a tenant or a tenant’s invitees. Most commercial leases provide that the tenant must indemnify the landlord for such actions. Furthermore, many leases contain terms expecting the tenant to seek insurance for the appropriate recovery.
However, tenants should understand that they deserve similar protections in a lease agreement. Tenants should not be held liable for damages caused by the landlord or the landlord’s invitees in the surrounding portions of the building. Of course, this also assumes the tenant does not lease the entire space owned by the landlord.
Negotiating Insurance Terms
If a tenant signs a commercial real estate lease without properly negotiating insurance terms, they’re putting themselves at risk. They risk failing to adequately protect themselves against liability claims and ending up with an overpriced insurance policy. It can severely impact their business and financial liability in worst-case scenarios. Thus, working with an attorney to negotiate the legal language and a commercial broker for negotiating economic terms is critical.
The Key Takeaway
Over the years, the Metro Manhattan Office space team has reviewed insurance clauses in thousands of commercial real estate leases. As an experienced Manhattan commercial tenant representative, Metro Manhattan knows what costs are reasonable.
Avoiding high costs can mean the difference between success and failure in your business. Metro Manhattan can help a tenant understand miscellaneous expenses that are difficult to compare, ranging from HVAC, service contracts, cleaning costs, and insurance.
Need help understanding commercial liability insurance requirements?
Contact Alan Rosinsky, Principal Broker at Metro Manhattan Office Space, at 212-444-2241.