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Controlling Risks for Property Owners

By February 10, 2020Business Insurance


When you understand the risks you face as a property owner or lessor, you can better

manage them and help prevent losses. Consider these scenarios:

Natural perils – A tornado sweeps through town, damaging your building and your

tenants’ contents.

Fire – A fire starts at one end of your multiple-occupancy building. After it is

extinguished, you find it has damaged multiple units and tenant contents.

Third-party injury or illness – A patron slips and falls in the parking lot, spraining

an ankle.

Change in occupancy – A restaurant replaces a retail store in one of your units. As

a property owner, you want to determine if the current sprinkler system is able to

handle the demands of a restaurant.

Change in tenant operations – A retail craft store expands its operations to

include pottery making. With this expansion, your tenant adds kilns to heat-treat

ceramic projects.

Vacancy – A vandal enters your unoccupied building and damages walls, floors,

windows or other property.

Review the responsibilities

A well-designed lease agreement can assist lessors in transferring responsibility for

payment due to bodily injury or property damage to the legally responsible party.

Consult with legal counsel when evaluating your current lease or other formal

contract. When consulting with your attorney, consider whether your agreement:

is signed by all tenants

contains appropriate anti-subrogation wording and indemnification–hold harmless

provisions favorable to you and acceptable under your state’s laws

authorizes you to develop, change and enforce rules and regulations for

the premises

defines which areas you control and which the tenant controls

defines the maintenance obligations of all parties while specifying the scope of the

operations and the steps you will take if the tenant defaults on these obligations

grants you the right to inspect the leased premises for conformance with the lease

provisions concerning maintenance and to point out to the tenant any obvious

hazards. Examples include uncontrolled cooking operations, improper handling of

flammable and combustible liquids, lack of fire protection equipment, blocked or

locked fire exits and exposed electrical connections. You also may want to consider

documenting those hazards in a follow-up letter to the tenant so future infractions

may be addressed through the lease.

requires the tenant to obtain permission before performing any building

alterations. You may want to retain the right to approve contractors and to specify

minimum insurance requirements for the contractor. In addition, you may want

to establish rules for when construction activities may take place along with the

specific areas for parking and staging to ensure public spaces are protected.

contains provisions regarding use of hazardous substances, dispensing of liquor

and other activities that increase the risk of loss

requires service contractors who come on your premises to provide certificates of

insurance verifying adequate limits of insurance and appropriate state licenses,

where applicable. Such professionals include automatic fire sprinkler system

contractors, snow removal contractors, HVAC contractors, plumbers, electricians

and janitorial contractors.

requires tenants to obtain specified liability insurance on behalf of the owner, with

you listed as an additional insured on a primary basis. Make sure you obtain proof

that the tenant has acquired and maintains all required insurance. Your tenant’s

insurance policy should have minimum commercial general liability limits of:

$1,000,000 each occurrence/$2,000,000 general aggregate, subject to a per

location aggregate applicable to all locations owned by you and rented or leased

by the tenant

$2,000,000 products/completed operations aggregate

$1,000,000 personal and advertising injury

$500,000 damage to premises rented to you

$5,000 medical payments

Consult with legal counsel to familiarize yourself with state laws before you lease

space to bars, restaurants or stores that sell liquor. In jurisdictions where the

property owner may be held responsible for incidents resulting from the sale of

liquor, consider whether the lease should require the tenant to adhere to applicable

liquor control laws and to indemnify the owner for any claims that result from

improper sale.

While it is your duty to live up to your obligations as a property owner, it is also wise

to make your tenants take responsibility for their actions and premises upkeep. By

adhering to a legal, binding lease or contract, you ensure everyone understands what

is expected at the property you own and who is responsible in the event of a loss.


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*Thanks to our friends at Cincinnati Insurance Company for this helpful information.