Why your commercial lease requires liability insurance

Insureon Staff.
Landlords often require business owners to carry commercial rental insurance. Learn why you may need to purchase insurance before signing a lease, and the types of coverage you may need to carry.
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Before you can move into a new office space or storefront, you’ll probably need to purchase commercial rental insurance. Most landlords require insurance coverage so they won’t have to cover the cost of an accident or injury at your business.

Let's look at why your commercial lease probably requires you to carry insurance, and the types of business insurance that you may need.

Commercial rental insurance protects landlords from business tenant mistakes

Commercial landlords have a legal duty to maintain their property and keep it safe for renters and visitors. For instance, your landlord is obligated to spread salt on icy sidewalks, repair broken stairs, and maintain common areas.

Property owners often purchase landlord insurance to help pay for damage to their real estate and other property. However, landlord insurance doesn’t protect property owners from potential liability for an accident, injury, or other incident that happens at a commercial tenant’s business. That’s why there may be business insurance requirements in your commercial lease.

For example, let’s say that you run a welding company and a fire breaks out in the workspace you're renting. In this case, your landlord would want you to carry enough insurance to cover any property damage, plus the costs of treating injuries to anyone in the building.

If the building owner didn’t require your welding business to carry business liability insurance, they might be on the hook for the cost of repairs and medical bills.

Keep in mind that landlord insurance will only pay to repair or replace your landlord’s property. It does not cover physical damage to your property, or the property of your customers. That’s why you should consider business insurance coverage to protect your own business from risks, such as premises liability insurance, which can cover injuries at your property or while visiting someone else’s property. Your coverage can shield your landlord, too.

Requiring tenants to purchase liability coverage can also protect your landlord in other ways. For example, suppose an employee at your cleaning business is injured on the job. Worker injuries can be expensive, and even one claim could leave you unable to pay your rent.

Your landlord might require your business to carry workers’ compensation insurance (which is legally required in most states) to make sure that cash flow issues don’t cause you to break your lease.

Most landlords require insurance coverage so they won’t have to cover the cost of an accident or injury at your business.

Liability insurance policies your landlord may require

Before submitting a lease application, it’s a good idea to ask the building owner what types of insurance you must have. Most lease agreements require tenants to carry some type of liability policy.

Landlords typically request a certificate of liability insurance as proof that your business has adequate coverage. Without it, your lease application will likely get denied. The most common policies required in commercial leases include:

Business insurance your landlord may require.

General liability insurance

General liability insurance is by far the most common insurance coverage required in a commercial lease. It’s also frequently required by mortgage lenders and in client contracts. It gives peace of mind that you’ll be able to pay for any damages or injuries your actions cause to a third party, like a customer or fellow tenant.

This insurance is vital if you have visiting clients or run a retail space. It covers the most common third-party claims, including:

  • Bodily injury and medical expenses
  • Property damage
  • Advertising injuries, such as libel and copyright infringement

General liability insurance is affordable for most small businesses. The median cost of general liability insurance is $42 per month, or $500 annually. Typically, the greater your risks, the higher your insurance premium payments will be.

Business owner’s policy

You may also want to consider a business owner’s policy (BOP), which bundles a general liability policy and commercial property insurance together.

Commercial general liability insurance covers basic business risks and will likely satisfy the terms of your commercial lease. Commercial property coverage will pay to repair or replace your damaged, lost, or stolen business property – such as computers and product inventory.

A business owner’s policy is typically cheaper than purchasing these policies separately. The median premium for BOP is $57 per month, or $684 per year. The cost of this insurance will vary based on a number of factors, including your industry, business, and the property you need to insure.

Compare small business insurance quotes from top U.S. carriers

Business interruption insurance

A growing number of landlords are requiring clients purchase business interruption insurance to protect against nonpayment of rent due to loss of business income. If an unexpected event temporarily shuts down a business, this coverage will pay for lost revenue, operation expenses, and rent if the business is forced to close.

For example, let’s say a fire forces you to close for renovations. Without incoming revenue, you may not be able to cover your rent. Business interruption coverage will pay your monthly rent payment, along with other bills.

This insurance costs between $40 and $130 per month, which equates to roughly $500 to $1,500 per year. Factors like the location of your business and the amount of revenue you bring in can impact the cost of this coverage.

Commercial auto insurance

If you own any sort of transportation or distribution business, your landlord may require you to carry commercial auto insurance. If you park your business vehicles in a rental property parking lot or have vehicles regularly coming to and from your business, you could be at risk for accidents, theft, or vandalism.

To avoid liability, your landlord may ask to be added to your commercial auto policy as an additional insured. This addition shouldn’t have a big impact on your premium costs.

Commercial auto insurance covers vehicles that are owned by your business. Rented, leased, or personal vehicles used for work purposes must be covered under a hired and non-owned auto insurance (HNOA) policy.

The average cost of commercial auto insurance is $147 per month, or $1,762 per year. Commercial auto insurance quotes will vary based on a number of factors, including the insurance company, the number of insured vehicles, and the policy limits and deductibles you choose.

Find the right commercial rental insurance protection

If you’re planning to rent a commercial office or storefront, it’s important to get the right insurance coverage. Commercial rental insurance can protect your business, your landlord, and help you both sleep better at night.

If you’re unsure of what insurance coverage your commercial lease may require or the insurance products that are best for your business, our insurance agents can help.

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