Role of the Property Manager in Commercial Property Landlord and Tenant Insurances
While most commercial property leases include details of the type and level of insurance cover agreed by tenant and landlord, it is the commercial property manager’s (CPM’s) responsibility to check the cover is current when a lease commences or when management of the property is undertaken by their agency. For a new lease, it is imperative that proof of insurance cover from both landlord and tenant is requested prior to leasing and the tenant having access to the property.
It is a critical part of a CPM’s lease administration procedure to:
· Check that details of insurance cover are included in the lease documents.
· Request in writing that the landlord provide a Certificate of Insurance, (also known as a Certificate of Currency), as proof that a policy has been issued and confirming details of the type of insurance cover, its value, any exclusion or excess limits, the premium and the period of the insurance cover.
There are many types of commercial leases for retail and non-retail property and the wording relating to the insurance cover the landlord and tenant have agreed, can differ. Certificates of Insurance can also be worded differently. Herein lies the dilemma for CPMs: How do they compare documents when they are not insurance experts? The answer is simple: They do not. Instead, a CPM should request in writing that both landlord and tenant check with their insurers that the insurance required in the lease is actually in place.
The value in doing this due diligence is that it can highlight unforeseen problems such as:
· The cover required and included in their lease terms – such as flood and internal floodwater – not being included because it is an item an insurer may decline to cover, or it is not an event usually covered.
· The current replacement value of the building and other associated costs (such as demolition and removal of rubble) not being adequately reflected in the insurance policy.
· Insurance for loss of rent when a tenant defaults not including any other losses.
· Loss of rent cover only being applicable if the building is actually destroyed by fire.
· Events like earthquakes, civil unrest or acts of terrorism not being covered.
Making changes to a landlord or tenants insurance cover is NOT part of the CPM’s role. Their role is only to check that the appropriate level of cover is in place.
Example 1: If the tenant’s insurance must include plate glass cover and public liability insurance of $20 million, the Certificate of Insurance must state that these are included. If public liability is only covered for $10 million, the CPM must request an increase in the level of cover and that a new certificate reflecting this increase be presented.
Example 2: If the landlord has insured their building for $2 million when it may be only worth $800,000, it is not the CPM’s role to advise the landlord to reduce their level of cover.
When it comes to insurance cover, landlords must seek their own advice. The CPM’s role is only to ensure that any insurance cover agreed in the lease terms is actually held by the landlord and tenant. Neglecting this critical task could expose the CPM’s agency to the risk posed by a major event such as fire, extensive water damage, personal property damage , vandalised plate glass windows just to name a few.