Insuring Against Loss of Rents for Commercial Properties
Perils that trigger Rent Loss Coverage
Assuming an office building had a fire, repairing the damage requires all tenants to vacate the premises, thus no rental income for the owner of the building during the time of repairs.
The owner had previously taken out an insurance policy that protects against perils such as fire, lightning, explosion, smoke, windstorm, vandalism, sprinkler leakage etc. The owner can get reimbursement from the commercial insurance company for the cost to repair the office building. What about the lost rental income while the building is uninhabitable?
Rent loss coverage need to be added to property coverage
In this case, while building is being repaired under a loss covered by property insurance, in order for the owner to also get reimbursement for rent loss, the owner needs to also have insured for the loss of income including rents as a part of their property insurance policy, since the loss of income has to be requested along with other property coverage.
Only if the lost rent is associated with a covered claim in the property policy can an owner or a landlord get reimbursement from their insurance company for rent loss or loss of use coverage.
What if tenants fail to pay rent, in the absence of any covered perils?
Rent Guarantee Insurance is a different kind of supplemental insurance
Rent guarantee insurance, as an additional supplemental insurance can reimburse landlords for their tenants’ non-payment.
Loss of Rents and Business Income for Multiple Insureds
In the case of multiple named insureds on a property policy with loss of rents, loss of business income and extra expense coverage, if rental income loss occurs, can all named insured’s claim for loss of rents and collect for their actual income loss and extra expenses?
Claims cannot overlap
It depends if the policy allows one insured to recover for the loss of rents and the other named insureds to collect for their business income losses and extra expenses. If there is no overlap in what they each claim, they should all be able to recover their losses.
No reimbursement for loss of rental income if a landlord abates loss of rents
Even if a landlord had purchased coverage for loss of rents due to an insured peril, If the tenant leases provided that the tenants were required to continue paying rent even if a peril renders the spaces untenable (and the landlord in spite of this contract clause asked the tenants not to pay rent after the peril rendered the property not occupiable, upon belief that the landlord’s insurance would cover the loss of rents), and the leases also required the tenants to purchase business interruption insurance, the landlord can be denied coverage by landlord’s commercial property insurer for the loss of rental income on the basis that the landlord abated rent payments.
Consult an insurance expert before signing a commercial rental lease
Be careful about the landlord-tenant insurance responsibilities before signing leases. It is in the best interest of both landlords and tenants to consult an experienced commercial insurance broker before entering into an agreement.
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