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Common Lease
Problems |
Most Favorable
Negotiation Tenant |
Most Favorable
Negotiation Landlord |
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1 |
Unilateral
Waivers Of Subrogation: Landlord -> Tenant only
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Tenant should
insist upon mutual waiver of subrogation (MWOS).
MWOS protects tenant from landlord's insurance
co. seeking indemnification from loss due to
tenant liability, as well as protecting landlord
from tenant's insurance co. seeking
indemnification from tenant liability.
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Landlord should
negotiate for unilateral waiver of subrogation (UWOS).
UWOS only allows landlord's insurance co. to
seek indemnification for loss due to tenant
liability. No right for tenant's insurance co.
to seek indemnification. |
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2 |
Even if lease
contains MWOS, tenant still faces potentially
catastrophic liability. |
Tenant should
include a mutual release of additional liability
in lease. This protects tenant against suit from
landlord when a loss caused by tenant exceeds
the landlord's building insurance limit (ex:
total bldg. loss by fire). |
Landlord should
negotiate for no mutual release of liability, in
order to maintain the right to seek recovery for
damages that exceed their own insurance limit.
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3 |
Tenant is
unsuccessful in having a mutual release of
liability added to lease.
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Tenant must limit
liability through the indemnification language
in the lease. Including: (a) mutual and
symetrical contact language; (b)exclude liabilty
from tenant's agent's, contractor's servant's
etc… (c) exclude sole liability if landlord is
also negligent, & (d) limit liability to types
and amounts. |
Landlord should
seek to weigh more liability on tenant when
possible, include all tenant's agent's
contractor's, servant's etc… in tenant
liability; exclude partial landlord liability as
condition for seeking recovery, and not limit
loss to type or amount. |
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4 |
Ensure most
beneficial “Additional Insured” & “Hold
Harmless” status.
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When possible, it
is better for tenant to not add landlord as
“additional insured” or include “hold harmless”
language in favor of the landlord. Tenant should
negotiate insurance for landlord as primary and
tenant’s as excess. |
Landlord should
seek to be added as “additional insured” to
tenant’s general liability, worker’s comp, and
umbrella policies. Landlord should seek to
include “hold harmless” wording in their favor
in the contract. Landlord should seek to make
tenant’s insurance primary. |
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5
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In a commercial
real estate lease, it is unusual for tenant to
require landlord maintain sufficient property
insurance on the premised and building(s).
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Tenant should
seek proof of sufficient insurance limits from
landlord because: (a) to ensure landlord can
repair property in case of loss;
(b) provides
leverage in MWOS negotiations;
(c) it reduces
likelihood landlord would seek indemnification
from tenant for loss above insurance limits.
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Landlord should
always obtain proper insurance limits, but they
should seek to now allow tenant to mandate them
to provide proof of limits as terms of a lease.
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6
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Commercial real
estate leases frequently contain "Surrender of
Premises" provisions which impose unacceptable
obligations upon tenant. |
Tenant should add
appropriate language to "Surrender of Premises"
provision in addition to "ordinary wear & tear"
including: (a) acts of God, (b) fire, & (c) any
other cause of loss. This protects tenant
against loss to property that was unavoidable
and where there was no negligence.
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Landlords which
do not want to waive subrogation against tenant,
should seek to maintain the common "Surrender of
Premises" provision, or omit altogether.
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7
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Commercial real
estate leases typically require tenant to
maintain (thus to repair or replace) various
parts of premises that tenant cannot
realistically insure. |
Tenant cannot
properly insure "…fixtures, exterior doors and
windows, window frames, meters, plumbing, and
HVAC equipment" because they are part of the
building the tenant does not own, and therefore
does not have any insurable interest in - any
claims would be denied. Tenant should either
request a dollar limit from landlord for each
item they are expected to maintain/repair/
replace in case of loss, or agree to just
maintain items, but not repair/replace them.
Landlord is already insuring these items through
the property insurance on the building.
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Landlord should
seek to require that tenant be responsible to
maintain, repair, and replace all fixtures at
tenant cost, and not include a schedule of
maximum limits for each item.
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8
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Requirement of
tenant's insurance company to provide landlord
30 days advanced notice of cancellation is
inconsistent with unendorsed insurance policy.
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Insurance policy
states notice of cancellation will only be sent
to first named insured, or mortgagee/loss payee.
Tenant should seek to maintain silent on this
issue. |
Insurance policy
states notice of cancellation will only be sent
to first named insured, or mortgagee/loss payee.
Amend agreement to require tenant to send any
such notice to landlord upon receipt.
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9
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Commercial real
estate leases frequently don't have specific
provisions regarding tenant's improvements &
betterments (TIB) which can create a number of
problems. |
TIB can qualify
as "contents" to be insured by tenant. If so,
tenant must increase "contents" limit to reflect
upgrades to avoid co-insurance penalty applied
in case or loss. |
If TIB insured by
landlord on building policy, note that failure
of landlords to increase value of building based
on TIB, is the most common reason that
co-insurance penalties are imposed on landlords
in the U.S. |
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10
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Misunderstanding
Certificates of Insurance (COI).
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It is extremely
important for both parties to note that most
insurance certificates are merely provided for
informational purposes. In order to gain the
benefits intended in a lease transaction, both
parties must ensure that proper endorsements are
issued and attached to the respective underlying
policies. Consult your insurance broker to aid
in this process. |
