Leasing or renting out commercial space comes with a host of possible liability issues, but Lessor's Risk insurance protects you from surprise mishaps
Being a property owner is risky business. There's a host of things that can go wrong even with the best practices and safeguards in place. If you lease or rent commercial space to businesses, you have to consider the potential liability issues that could unfold, especially if those businesses under your roof employ heavy equipment and manufacturing. That said, it's wise to be cautious in any situation, whether you rent apartments or retail space.
A property owner who doesn't have Lessor's Risk insurance coverage is at serious risk of costly liability.
Here's an example: you lease commercial space to a business and an employee of that business falls on a stairwell and breaks her ankle. She may blame the injury on lack of proper lighting and file a suit against you, the property owner. Your commercial property insurance does not cover these situations. You pay out of pocket. Depending on the severity of the injury and litigation expenses, you're going to have substantial losses. The same situation can happen if damage is caused to your tenant's property within or around the building.
What is Lessor's Risk insurance and why is it important?
In simple terms, taking out a Lessor's Risk insurance policy is protecting you and your investment from people who sustain injuries or damages by use of or interaction with your property. However, depending on the limits of your coverage, this policy can also cover special situations that arise, such as:
- Theft of tenant's property or tenant's customer's property
- Vandalism of tenant's property or tenant's customer's property
- Litigation expenses from lawsuits and processes
- Repair or replacement of tenant's belongings
- Financial assistance in case of injury on premises
Can you see how the expenses begin to pile up just with one mishap? As a property owner, you should require your tenants to obtain necessary coverage on their business liability and personal property. Including that mandate on your lease along with naming you, the property owner, as an additional insured will provide extra shielding against any lawsuits.
One reminder: to qualify for Lessor's Risk insurance, you cannot occupy more than 25% of the building you are leasing out, whether it be a commercial space or apartment building.
A few examples on how Lessor's Risk insurance can make a difference
1. You lease out a commercial retail space to an electronics boutique. They sell high-end, expensive computer parts and phones, and do regular repairs for their customers. One customer comes in and purchases a computer monitor but decides against the warranty. On his way out of the building, the customer loses his balance on an uneven floorboard. He trips and falls on top of the monitor, smashing it and injuring his hand caught underneath. He files suit against the building owner (you) for damages to his property (monitor) and medical expenses (treatment for his hand). Since this customer works as a general laborer and is unable to work due to his injury, the difference of his lost income is added to the lawsuit, plus additional losses.
2. In a similar case, let's pretend you lease out commercial space to a tech start-up company. Over the weekend, there's a break-in. The company loses laptops, monitors, personal valuables, office supplies, and more. After an initial inspection, it becomes clear that it was easy for the burglars to make their way inside due to improper security procedures in the building. Guess who is getting blamed for that situation? That'd be you ... the property owner.
Seek to cover all your business liabilities to the max
Keep in mind that Lessor's Risk insurance only covers specific liability claims, particularly those outlined throughout the post above. If your building were to receive damage due to accidents within your tenant's business space, these liabilities wouldn't be covered under Lessor's Risk Only (LRO) policies. As a business owner, it's important to seek total coverage of your investment.
If you're seeking general liability or commercial property insurance, we can help. Check out the Pekin PAK program, which includes Lessor's Risk insurance. We offer competitive rates and combined policy packages for our customers, plus preferred rates for qualified commercial property owners. Are you prepared for accidents? Give us a call or request a quote for more information.
Do you have Lessor's Risk insurance? Share your thoughts in the comments section. We'd love to know what made you commit to an LRO policy!