The repair language is intended for everyday maintenance problems. However, it is the “insurance clause” that is controlled in a claim situation, as well as any “waiver of recourse” language in the lease. The “tenant improvements” clause in the lease partially covers the installation of the improvements, the ownership and timing of the transfer of title, and who pays the taxes on the TIAs, etc. Early review of the lease, identification of problems, involvement of adjusters and interested parties are essential to establish clear expectations and successfully recover damages for the costs incurred. Underinsurance may occur if one of the parties believes that the other party will insure the property based on its interpretation of the lease, which may not be consistent with the interpretation and intent of the other party. As a result, situations may arise in which both buy coverage or neither buys the required coverage. The tenant`s basic insurance includes liability insurance. This helps tenants in situations where they may be liable for damages to a third party, another suite or the building. For example, if a fire breaks out in the tenant`s apartment and damages another suite, liability insurance will help cover the cost of damage to the tenant`s unit and the other suite. Many tenants have insurance, even if it is not required under the lease in an emergency.
In one case, we had an owner who wanted to have “complete” control over repairs in a damage situation. But instead of simply enforcing the terms of their lease and forcing the tenant to do the repairs to the TIB, they actually wanted to control the insurance and repair of the landlord`s property and the tenant`s improvements, no matter when it was installed or who paid for it. From time to time, I encounter unique requests from clients (especially real estate developers or landlords) where the landlord or tenant wants to transfer the obligations subject to insurance in the lease from one to the other. This action can be difficult because critical rental clauses – if not carefully reviewed by a broker – can cause real problems in the event of a claim. The judge clarified that the terms of the lease were at the heart of deciphering how the parties had agreed to share the risk between them. After reviewing the (fairly important) case law on the subject over the past 30 years, he came to the following conclusions: The judge was clearly not impressed by the lease in this case. He commented that while it was a standard document from a large chain of rental agents, the project was “unclear and even contradictory in several places.” Nevertheless, the judge concluded that the landlord was required under the lease to insure the property. Although there were no specific obligations for the tenant to contribute to the insurance costs, the judge found that she had done so indirectly by paying the rent. The lease did not require the landlord to use the proceeds of the insurance for the redevelopment of the property, but the judge noted that this was “not important.” The agreement stipulated that the tenant did not have to pay rent if the property was made unfit for the use of an insured risk.
The judge concluded that the terms of the lease as a whole showed that the common intention of the parties was that the insurance would benefit both parties and that if the damage was caused by an insured risk, the landlord would demand reimbursement from the insurers rather than the tenant. Since the landlord was unable to assert a claim against the tenant, the insurer`s assigned claim also had to fail. Yes, a landlord can require a tenant to have insurance as the term of the lease. It is up to the tenant to accept this clause. Tenants can try to negotiate this deadline with the landlord. The landlord and tenant can use the same supplier for repairs, but each must request their own estimate and invoice for their respective interests and submit claims to their insurer. As a claims consultant focused on real estate liabilities, I review clients` leases as part of my standard process for assessing their exposures. For businesses, it`s important for their brokerage firm to scrutinize critical lease clauses that affect an owner`s obligations in the event of a claim: while it`s important to act immediately to mitigate damage after an incident, it`s equally important to abide by lease terms, to avoid additional liability risks or claims. Once a claim has been reported to the broker and insurer, it is important that the adjusters and the client work together and agree on the interpretation of the lease. Next, everyone must ensure that their intentions are in line with the customer`s understanding and expectations, and these must be communicated to the suppliers who carry out the remediation and repairs so that the scope of work/estimates is correct for each party and charge the costs to the right party who bears the risk. Therefore, the landlord can do this after a loss and take control of repairs to their property and TIB without having to wait for the tenant`s insurer to split between the two policies.
Insurers are bound by the terms of the lease, which their policyholders sign before a loss. Careful consideration of the essential provisions of the lease and understanding your involvement in the claims process and the monitoring of repairs will make a significant difference in understanding your insurance needs, contractual obligations, and the expectations of other parties. This case shows that if a landlord`s insurer is considering a recovery claim against the tenant, it is important to first carefully consider the terms of the lease. The case is also a good reminder that even if the agreement was created by a reputable rental agent, it can be unclear and contradictory. The crucial point is to assess whether the lease requires the landlord to insure the property. If this is not the case, but the landlord has always insured the property, a claim against the tenant should be successful. However, if the lease requires the landlord to insure the property, the insurer must proceed very carefully, as there is a good chance that a transferred recovery claim can be excluded. The other terms of the lease must be carefully considered to determine if this is actually the case. .