Your lease already wrote your insurance policy. It is easy to sign it and read it later.
The insurance clause in a commercial lease sets your limits, names who has to be added, and decides who pays when the building is damaged. Signing it commits you to cover you may not hold yet, and the landlord will ask for proof before you get the keys.
Start a quote file Read the short answer firstNamed in the lease, not chosen by you.
Landlord added, and often their lender too.
Your insurer gives up the right to recover from them.
What does a commercial lease require me to insure?
Almost always four things. General liability at a limit the lease names. Cover for damage to the space you occupy. The landlord added to your policy as an additional insured. And a waiver of subrogation in the landlord’s favour. Many leases also ask for cover on the fit-out you paid for, cover for lost income if the space becomes unusable, and notice to the landlord before your policy is cancelled or changed. It is usually one dense paragraph, and every line of it does work. The waiver is the line worth understanding. The Insurance Institute of Canada’s definition, published in IBC’s glossary, calls subrogation the “Legal process by which an insurance company, after the payment of a loss, is assigned the rights of the insured to recover the amount of the loss from those who are legally liable for it”. Waiving it means your insurer gives that right up before anything happens. Read the subrogation entry in IBC’s glossary (opens in a new tab).
This is the door most main street businesses come through, and it arrives at the worst time. The lease is signed when you are opening, the certificate is needed before you take possession, and nobody reads an insurance clause carefully at the same moment they are ordering equipment and hiring staff.
Whether the clause can be changed is worth testing, and it can only be tested before signature. A limit can be carried over from a template rather than set from the risk of the space. A figure written for a large industrial unit can end up in a lease for a small office. Once signed, you are committed to buying whatever it says. Send us the clause with the draft lease and you will get, in writing, what it requires and which parts are worth raising with the landlord.
None of them is boilerplate.
The liability limit
A stated amount your general liability must carry. If the number is above what you hold, you buy up or you do not get the keys. Where the lease asks for more than your policy carries, there are two routes. Raise the limit on the policy itself, or add an umbrella policy that sits on top of it. Which route fits depends on your business, on what the market will write, and on whether the lease wording will accept an umbrella towards the limit. Price both.
Additional insured
The landlord, and frequently their mortgage lender and property manager, added to your policy for liability arising out of your occupancy. It is a routine request and your broker arranges it. What is not routine is a clause asking you to insure the landlord’s own sole negligence. Some leases reach for that, and insurers generally will not extend cover that far.
Waiver of subrogation
You agree that your insurer will not pursue the landlord even if the landlord caused the loss. Insurers will normally agree to it when asked in advance. They react badly to finding out after a claim, so it has to be on the policy, not just in the lease.
Tenants legal liability
This is your legal responsibility for damage to the space you rent, including damage caused by your staff. It is not property insurance on the building, which the landlord insures, and it is not covered by insuring your own contents. Some wordings answer only for fire and a short list of named perils, so check which yours is. The limit should reflect what it would cost to repair or rebuild the space you occupy, so check that figure rather than accepting whatever was set at the start.
Three clauses worth reading twice.
The limit that came off a template
A small studio was handed a lease requiring a liability limit written for a warehouse. Nobody questioned it because it was in the standard document. Raising the base limit was a cost carried every year for the life of the lease. Nobody had asked, before signing, whether the number could be brought down or met a different way.
The improvements nobody insured
The tenant paid for the fit-out, the walls, the flooring and the counters. After a fire the landlord’s policy covered the building as it was originally built. The improvements were the tenant’s and had never been added to the tenant’s own policy, because everyone assumed the building insurance covered the building.
The clause that reached too far
The lease asked the tenant to indemnify the landlord for any claim connected to the premises, including the landlord’s own sole negligence. The tenant’s insurer would not follow that promise. The obligation still existed in the contract, uninsured, which is the worst combination available.
The ones that come up between signing and opening.
The landlord wants a certificate today. How does that work?
Tell us the deadline when you get in touch and we will tell you honestly what is realistic. A certificate can only be issued once cover is arranged, so the useful thing is to start the conversation when the lease is in draft rather than on the day possession is due.
Does the landlord’s insurance not cover the building?
It covers the building as the landlord owns it. It does not cover your contents, your fit-out, your liability, your income, or your responsibility for damaging the space. Those five are yours, and the lease usually says so in a single sentence that is easy to read past.
Can I negotiate the insurance clause?
The limit is the usual place to start, along with any language asking you to insure the landlord’s own sole negligence. It is a commercial negotiation like the rent free period. What you cannot do is negotiate it after signature.
What happens when I renew the lease?
Requirements change, and so does the cost of rebuilding the space. Both the liability limit and the tenants legal liability figure are worth revisiting at every lease renewal rather than being carried forward because they were right once.
I work from home and rent a small unit for storage. Same rules?
Broadly yes, and there is a second issue. A home policy generally will not answer a business exposure, so the storage unit and the business activity both need to sit somewhere deliberate. It is a short conversation and it is an easy gap to leave open.
Two that the lease clause usually leads to: what general liability does not cover and what an umbrella sits over.
Not the question you had? Send the clause and the question with it through the quote file and you will get a written answer.
Send the clause while the lease is still a draft.
It is one paragraph, it takes minutes to read, and it is the only point at which any of it is negotiable.