Lessor’s risk only

Lessor’s risk only (LRO) is a type of small business insurance for commercial landlords. It protects you in case one of your tenants sues you for property damage or injuries sustained in your building.

The coverage, also known as landlord insurance, is designed for owners of commercial property, such as apartment buildings, retail complexes, office space, warehouses, and other building types. The landlord generally must not occupy more than 25 percent of the building leased to tenants.

Lessor’s risk only insurance covers a wide range of risks resulting in property damage or bodily injury that might arise on a property leased to a client. These include losses such as:

• Slip-and-fall injuries
• Weather damage
• Vandalism
• Fire
• Water-related damage (burst pipes / backups)
• Auto accidents at the property
• Theft

Lessor’s risk only policies can also cover other risks, such as pollution damage, through an endorsement to the base policy.

Lessor’s risk only and general liability insurance are similar small business coverages that protect you when third parties claim you damaged their property or caused them bodily injury.

The main difference is that landlord insurance applies exclusively to losses resulting from your tenant’s use of your property. For example, if one of your tenants slipped and fell on a stairway in your leased building and blames your failure to provide adequate lighting, then your lessor’s risk only policy would respond to the incident. It would provide you with an attorney and pay for your legal expenses, up to the policy limits you purchased.

Your general liability coverage applies to lawsuits that other third parties (not your tenant) bring against you for property damage or injuries suffered on your property. If a delivery person fell on the same stairs as the tenant, your general liability policy would respond.

This underscores the importance of maintaining both lessor’s risk only and general liability insurance on all properties you lease.

Lessor’s risk only shields you against tenant claims of property damage or bodily injury due to your wrongful act. It has nothing to do with protecting your own commercial property against various types of damage. For that, you need commercial property insurance.

Lessor’s risk only insurance does not cover a tenant’s personal property. Tenants would normally seek coverage from their personal renter’s or homeowner’s policy.

Underwriting requirements vary depending on the insurer. In general, however, an insurance company will look for your building to be:

• Fully or largely occupied
• Free of electrical hazards
• Protected by smoke detectors, sprinklers, and fire extinguishers
• Well maintained

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