Banks Insurance - Should Landlords Increase Insurance Requirements?

This post brought to you by Greg Banks of Banks Insurance

Prior to opening my insurance agency, I owned an independent insurance adjusting company. This background has given me insight into how some companies miscalculate the type of insurance coverage they need. There are several examples I can illustrate where a client was either improperly or inadequately insured which resulted in severe monetary loss and in some cases causing the company to go out of business completely. Landlords should consider increasing tenant's insurance requirements to prevent this.

Now landlords might be thinking, why should they consider getting this involved? I agree, there is a fine line here. Landlords do not want to scare potential tenants away or place added financial stress on them. But consider this; the tenant's success has a direct impact on the landlord's success. If a tenant goes out of business or is financially impacted enough by a loss that it affects their ability to grow, this directly affects the landlord.

I adjusted claims in New York after Hurricane Sandy. A business owner did not have flood insurance, and because of the storm surge his business was completely destroyed. His landlord had flood insurance, but that did not cover the tenant's contents or equipment. That business is no longer in existence, and the landlord is still trying to lease the space. This same scenario can occur from catastrophic plumbing losses, fires or a multitude of other types of losses.

As an adjuster I would see that tenants sometimes insure themselves merely to meet the landlord's requirements. Often this would translate into the tenant only obtaining General Liability Insurance because that was all that was required of them in the lease. This leaves the tenant wide open to multiple types of losses that would not be covered. For example, if a tenant has a plumbing leak and all of their office furniture and equipment is destroyed, they will not be covered unless they have Commercial Property Insurance. If a restaurant suffers a fire loss and needs to close for renovations they could claim lost revenue if they purchased Business Income Insurance. After a loss, a business can move to a temporary location or incur some other type of extra expense, like renting temporary equipment, if they have purchased Extra Expense Insurance.

In a perfect world, the tenant would already have these types of coverages. But I can tell you, many who should have these coverages, for whatever reason, do not. Perhaps their insurance agents did not recommend or explain these types of policies. Whatever the reason, I recommend that landlords either make some of these coverages a requirement or at a bare minimum have the conversation with their tenants about them. 

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Nick Banks

Nick created Front Street Commercial Real Estate Group in 2002 and spent the first eight years developing and acquiring office and retail projects in South Florida as well as North Central Florida. In 2010 the focus of the firm was shifted to primarily serve third party clients and perform brokerage, property management and mortgage banking functions. Nick has personally developed and acquired nearly 200,000 square feet of office and retail properties in markets throughout Florida. Prior to founding Front Street, Nick was the Director of Finance and Dispositions for Stiles Corporation in Fort Lauderdale where he financed and sold over $500 million in commercial real estate. Before joining Stiles, Nick was an Associate Director at GE Capital Real Estate where he sourced over $200 million in financing throughout Florida. Nick is a graduate of the University of Florida with a degree in Finance and a concentration in Real Estate. He serves as a board member and current vice-chair for the United Way of North Central Florida where he also chairs the Development Committee. Nick is actively involved with the Gainesville Area Chamber of Commerce where he serves as a board member and committee member for the Council for Economic Outreach. He is also a recent graduate of Leadership Gainesville which is a year long leadership program hosted by the Chamber. He is a member of Grace United Methodist Church where he has served as finance chair and as a member of the leadership council. Nick serves as an advisory board member of the University of Florida Bergstrom Center for Real Estate Studies. Nick was recently named chair of the Gainesville committee for the North Florida chapter of Urban Land Institute (ULI). He is a licensed real estate broker in the State of Florida and is a long time member of the International Council of Shopping Centers.

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