Insurance—a tenant’s practical lease negotiation guide
Insurance—a tenant’s practical lease negotiation guide

The following Property practice note provides comprehensive and up to date legal information covering:

  • Insurance—a tenant’s practical lease negotiation guide
  • Who insures?
  • Landlord’s insurance objectives
  • Tenant’s insurance objectives
  • Landlord’s obligation to insure
  • What should the landlord insure?
  • For what sum should the landlord insure?
  • What are the insured risks?
  • Insured risk becoming an uninsured risk
  • Terrorism
  • More...

This Practice Note discusses a tenant’s considerations when negotiating insurance provisions in a rack rent commercial lease. It identifies key concerns, suggests possible tenant amendments and considers how the insurance provisions interact with each other. It includes consideration of insured risks and uninsured risks, loss of rent insurance, rent suspension, reinstatement obligations and uninsured damage.

Who insures?

While the parties might agree that the tenant can insure where it has paid a premium for its lease, in this Practice Note we are concerned with the situation where the landlord insures as this is almost always the case in a commercial rack rent lease. The landlord owns the freehold asset and will want to ensure its value is fully protected with sufficient insurance and it will not be happy to rely upon a tenant’s covenant to insure as the consequences of noncompliance are, potentially, the loss of the asset.

Landlord’s insurance objectives

The landlord will need the insurance clauses to achieve the following aims:

  1. control of the insurance process, both in choosing the insured risks and the insurer and also when reinstating the premises

  2. the ability to recover from its tenants the full cost of insuring the premises and common parts, if relevant, including the cost of any loss of rent insurance. If the premises are damaged, it must have sufficient monies to reinstate without affecting its income stream

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