Key Takeaways
- Commercial landlords typically need building property coverage, premises liability, and loss of rents coverage as the foundation of their program.
- Lessor's risk only (LRO) policies can be a cost-effective liability option for owners who do not occupy their buildings.
- Loss of rents coverage should be sized to the time it would realistically take to rebuild and re-lease, not just a few months.
- Your lease and your insurance should be designed together so tenant requirements, waivers, and responsibilities line up.
Commercial landlord insurance typically combines building property coverage, premises liability for the owner, and loss of rents coverage that replaces rental income after a covered loss. Owners should also consider ordinance or law, equipment breakdown, and umbrella coverage, and should require tenants to carry their own insurance, says the team at Bozzuto Group, a San Diego–based specialty commercial insurance brokerage.
Whether you own a single retail strip, a multi-tenant office, or an industrial building, your insurance needs to protect three things: the asset, your liability as owner, and the income the asset produces. Your leases determine how much of that risk shifts to tenants. Here is how each piece works.
What property coverage does a commercial landlord need?
Commercial property insurance covers the building and owner-provided equipment, such as HVAC, elevators, and common-area fixtures, against perils like fire, wind, and vandalism. Key terms to review include:
- Replacement cost vs. actual cash value. Replacement cost pays to rebuild without deducting depreciation. Actual cash value deducts depreciation and can leave a significant shortfall on older buildings.
- Coinsurance. A coinsurance clause requires you to insure the building to a stated percentage of its value. If you underinsure, your claim payment can be reduced proportionally. An agreed value endorsement can suspend this penalty.
- Ordinance or law coverage. Older buildings may need to be rebuilt to current codes after a loss. This coverage pays for the undamaged portion that must be demolished, demolition costs, and increased construction costs, which standard forms limit or exclude.
- Equipment breakdown. Building systems can fail internally. Equipment breakdown insurance covers boilers, chillers, electrical systems, and elevators.
Earthquake and flood are typically excluded and must be purchased separately where needed.
What is loss of rents coverage?
Loss of rents coverage, also called rental income or rental value coverage, replaces the rent you lose when a covered loss makes all or part of a building untenantable. It is a form of business income coverage designed for landlords.
Size this coverage carefully. A serious loss can take far longer to resolve than owners expect once you add design, permitting, reconstruction, and the time to sign new tenants. Look for:
- A limit or period of restoration long enough to rebuild a building of your type
- An extended period of indemnity that continues payments while occupancy recovers
- Inclusion of operating expenses tenants reimburse under net leases, such as taxes, insurance, and common-area maintenance
For example, imagine a retail center where a fire closes half the units. Even after repairs, some tenants may not return. Extended period of indemnity coverage helps bridge the gap while vacant units are re-leased.
What liability coverage should landlords carry?
Landlords can be sued for injuries in parking lots, sidewalks, stairwells, and other common areas they control. General liability covers those bodily injury and property damage claims.
Lessor's risk only policies
A lessor's risk only (LRO) policy is a liability policy for owners who lease their entire building to others and do not occupy it themselves. Because the tenant controls daily operations, LRO coverage is often priced lower than a standard premises policy. Eligibility depends on the carrier, the type of tenants, and how much of the property you control.
Umbrella coverage
A single serious injury claim can exceed primary limits. An umbrella policy sits above your liability coverage and adds limits at a relatively modest cost.
| Coverage | What it protects | Watch for |
|---|---|---|
| Building property | The structure and owner equipment | Valuation, coinsurance, ordinance or law |
| Loss of rents | Rental income during repairs | Period of restoration, extended indemnity |
| General or LRO liability | Injury claims on the premises | Eligibility, habitational or tenant exclusions |
| Umbrella | Limits above liability | Underlying requirements |
| Equipment breakdown | Building systems failure | Inspection requirements |
What insurance should you require from tenants?
Your lease shifts some risk to tenants, but only if the insurance clause is written and enforced well. Common tenant requirements include:
- General liability with stated limits, naming you as additional insured
- Property coverage for tenant improvements and business personal property
- Business income coverage so tenants can keep paying rent after a loss
- Waiver of subrogation in favor of the landlord
- Workers' compensation where the tenant has employees
Collect certificates at lease signing and every renewal, and confirm additional insured status by endorsement, not just by a box checked on a certificate. Our guide to certificates of insurance explains what to look for.
What about vacancy?
Many property policies restrict coverage for certain losses, such as vandalism, glass breakage, and water damage, once a building has been vacant beyond a specified period. If a property or a large portion of it will be empty, tell your broker. A vacancy permit endorsement or vacant building policy may be needed.
Vacancy also raises practical risks. Regular inspections, working alarms, secured entrances, and winterized plumbing reduce the chance of vandalism, squatters, and water damage. Document each inspection, since underwriters and adjusters may ask for evidence that an empty building was maintained.
How Bozzuto Group Helps
We review your real estate portfolio building by building, checking valuations, coinsurance terms, and ordinance or law limits. We size loss of rents coverage to realistic rebuild and re-leasing timelines, evaluate LRO eligibility, and review your lease insurance clauses so tenant requirements support your own program. We can also help set up a process to track tenant certificates.
For a review of your landlord coverage, call Bozzuto Group at 858-805-1865 or request a quote.
Frequently Asked Questions
What insurance does a commercial landlord need?
Most commercial landlords carry building property insurance, general liability or a lessor's risk only policy, and loss of rents coverage. Many also add ordinance or law coverage, equipment breakdown, and umbrella liability. Earthquake and flood are separate where needed. Leases should require tenants to carry their own liability and property insurance and name the landlord as additional insured.
What is lessor's risk only insurance?
Lessor's risk only (LRO) insurance is a liability policy for property owners who lease their building to tenants and do not occupy or operate it themselves. It covers the owner's premises liability, such as injuries in common areas. Because tenants control daily operations, LRO is often less expensive than standard premises coverage, though eligibility depends on the carrier and tenant mix.
How does loss of rents insurance work?
Loss of rents insurance pays the rental income a landlord loses when a covered event, such as fire, makes space untenantable. Payments typically continue through the period of restoration, the time reasonably needed to repair. An extended period of indemnity can continue payments while tenants return or new leases are signed. Limits should reflect realistic rebuild timelines.
Should a landlord require tenants to have insurance?
Yes, in most cases. Requiring tenants to carry general liability, property, and business income coverage protects the landlord and helps tenants keep paying rent after a loss. Leases commonly require additional insured status and a waiver of subrogation in favor of the landlord. Collect and review certificates and endorsements at signing and every renewal.
Does landlord insurance cover a vacant commercial building?
Coverage can be restricted. Many property policies limit or exclude certain losses, including vandalism, glass breakage, and water damage, after a building has been vacant beyond a stated period. Owners should notify their broker when a building or significant portion becomes vacant, and may need a vacancy permit endorsement or a vacant building policy.