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Commercial real estate insurance
Posted on 4/12/23 at 10:55 am
Posted on 4/12/23 at 10:55 am
My wife leases a building (triple net lease) and I'm curious as to what is "normal" in regards to the insurance on the building itself. i.e. should it be market value or replacement cost? the building is at least 40 yrs old, not in great shape (plumbing and elect have never been updated) the HVAC is just meh. the owner is now hinting that he thinks the insurance company is low balling the re build cost and that it may be based on the market value instead of true cost to re build. the building is limping by. the offices next door and across the street are abandoned and/or without tenants. it was purpose built and if my wife were not leasing it, he couldn't find another renter if he tried.
from the lease agreement:
Tenant shall, throughout the term of this Lease, keep the Premises insured with a reputable insurance company against loss by fire and hazards at Tenant’s expense in an amount sufficient to cover the full value of the Premises that has been approved in writing by Landlord.
from the lease agreement:
Tenant shall, throughout the term of this Lease, keep the Premises insured with a reputable insurance company against loss by fire and hazards at Tenant’s expense in an amount sufficient to cover the full value of the Premises that has been approved in writing by Landlord.
5
Posted on 4/12/23 at 11:02 am to Jmcc64
quote:
with a reputable insurance company against loss by fire and hazards
what horrible language.
Posted on 4/12/23 at 1:22 pm to Jmcc64
It's a poorly written lease and insurance provision, which is ambiguous as to what "full value of the Premises" means, but with the added language of "that has been approved in writing by the Landlord", I would say it's whatever the Landlord says it is since Landlord has to give its approval to the insurance policy.
And going along with the poorly written lease theme, as a landlord, never allow the tenant to insure your building. The landlord should always control the property insurance and pass that cost along to the tenant. Clearly you are dealing with an unsophisticated landlord with an unsophisticated attorney representing him, but, I digress.
And going along with the poorly written lease theme, as a landlord, never allow the tenant to insure your building. The landlord should always control the property insurance and pass that cost along to the tenant. Clearly you are dealing with an unsophisticated landlord with an unsophisticated attorney representing him, but, I digress.
Posted on 4/12/23 at 1:25 pm to jfw3535
I didn't know that the tenant could insure the building.
You can't claim a loss on something that you never owned in the first place.
You can't claim a loss on something that you never owned in the first place.
Posted on 4/12/23 at 1:36 pm to meansonny
A tenant has an insurable interest in the building regardless, but especially if they are contractually obligated to insure the building per the lease.
Posted on 4/12/23 at 1:42 pm to meansonny
the tenant is picking up the cost. He sent in the bill and hinted that if he pushed the issue he could make the insurance bill go up because of what he sees as a "disconnect between build cost and market value".
He and siblings inherited the building from the father who worked in and owned it, but died unexpectedly in '16, so his son/daughter become landlord by default.
He and siblings inherited the building from the father who worked in and owned it, but died unexpectedly in '16, so his son/daughter become landlord by default.
Posted on 4/12/23 at 2:18 pm to jfw3535
quote:
A tenant has an insurable interest in the building regardless, but especially if they are contractually obligated to insure the building per the lease.
That doesn't sound right.
They can have an interest in paying the premium. But any repairs to repair or replace the building won't have the tenants name on them. That's kind of crazy.
This post was edited on 4/12/23 at 2:18 pm
Posted on 4/12/23 at 2:50 pm to meansonny
NVM, I can't read
This post was edited on 4/12/23 at 2:51 pm
Posted on 4/12/23 at 3:38 pm to jfw3535
quote:
And going along with the poorly written lease theme, as a landlord, never allow the tenant to insure your building.
WUT, I'm not in commercial leasing but NNN is extremely common or rather normal and that's exactly what NNN is. The tenant pays taxes, insurance, and maintence....
Now, maybe the owner has a small additional policy for any coverage gaps?
Posted on 4/12/23 at 4:20 pm to baldona
Did you just quit reading at the end of the sentence? Because the next sentence clearly says:
Yes, you pass the insurance cost along to the tenant, but as a general rule, a landlord should never allow the tenant to directly control the payment of property insurance or taxes. What if tenant fails to pay for insurance and the insurance lapses and then your building burns down? What if they don't pay property taxes and the property gets sold at tax sale? If the tenant buys the property insurance in its name and there is an insured loss, who controls the insurance adjustment process, the tenant or the landlord?
As I said, Landlord should pay those items directly and then include them in the operating expenses that are passed through to the tenant and paid monthly by the tenant as additional rent.
quote:
The landlord should always control the property insurance and pass that cost along to the tenant.
Yes, you pass the insurance cost along to the tenant, but as a general rule, a landlord should never allow the tenant to directly control the payment of property insurance or taxes. What if tenant fails to pay for insurance and the insurance lapses and then your building burns down? What if they don't pay property taxes and the property gets sold at tax sale? If the tenant buys the property insurance in its name and there is an insured loss, who controls the insurance adjustment process, the tenant or the landlord?
As I said, Landlord should pay those items directly and then include them in the operating expenses that are passed through to the tenant and paid monthly by the tenant as additional rent.
Posted on 4/12/23 at 6:03 pm to Jmcc64
Unless the tenant is listed on the deed, or on the insurance policy as an Additional Insured they shouldn't have any ability to change the terms or receive payout in the event of a loss.
Posted on 4/12/23 at 6:15 pm to Jmcc64
The landlord should consider the current weakness in the commerical building market.
Posted on 4/12/23 at 6:34 pm to jfw3535
quote:
What if tenant fails to pay for insurance and the insurance lapses and then your building burns down?
You can be named specifically on the policy and notified?
Posted on 4/12/23 at 6:56 pm to Jmcc64
quote:
He sent in the bill and hinted that if he pushed the issue he could make the insurance bill go up because of what he sees as a "disconnect between build cost and market value".
Insure for the property tax appraised value. If the landlord doesn't like it have him contest the low tax appraisal
Posted on 4/12/23 at 9:24 pm to Jmcc64
quote:
should it be market value or replacement cost
Replacement cost if the insurance company will let you. Run a cost estimator based on specs of building to find true value. Don’t just guess.
quote:
building is at least 40 yrs old, not in great shape (plumbing and elect have never been updated) the HVAC is just meh
In this case you may be stuck with ACV valuation. If the owner doesn’t care enough to update/care for the building in 40 years, why should the insurance company? It puts your wife in a bad spot if she isn’t the owner when the insurance company comes in and make a ton of standard recs (update roof, plumbing, hvac, electrical, etc) and she has no control over it.
Posted on 4/12/23 at 9:47 pm to jfw3535
quote:And who insures the building if the tenant leaves? Or do you as a landlord want to risk a tenant missing a premium payment and letting coverage lapse? Plus the tenant doesn’t have an insurable interest. If the building burned down or suffered severe enough damage to force the business to close for a while, the landlord would likely have to let the tenant out of their lease. Tenant relocates to stay in operation and the landlord makes a claim on their policy for business interruption / loss of income.
A tenant has an insurable interest in the building regardless, but especially if they are contractually obligated to insure the building per the lease
I’ve never heard of a tenant insuring a building they were leasing.
Landlord insures the building and generally requires the tenant to carry a BOP with the landlord listed as an additional insured.
This post was edited on 4/12/23 at 9:51 pm
Posted on 4/13/23 at 10:33 am to jfw3535
that's what brought up my question. the owner sent an email thanking the office mgr for the proof of insurance payment and then he started in on the "you could be paying more if I wanted you" to spiel. I guess if they didn't pay he's sue for breach of contract?
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