Friday, April 13, 2012

Insurance Implications of a Double or Triple Net Lease

You've saved up your pennies and invested in a commercial building.  You find a nice tenant and start leasing the space.  You decide to do a triple net lease to keep your overhead down.  

Photo by Margan Zajowicz

Why that wasn't such a good idea:

  1. This is one of your biggest assets, wouldn't you want to make sure it's covered properly?  Tenants don't have skin in the game when it comes to your building and are going to do the least possible to adhere to your requirements.  They are already paying you rent and see the insurance as an additional cost.
  2. Your tenant could forget to pay the premium and you could be on vacation when the warning of cancellation comes in the mail.  The policy cancels, there's a fire, and you don't have coverage.
  3.  Photo by  Alex Patru   
  4. Crimes committed by the named insured (your tenant) are excluded.  For instance, your tenant could purposely burn down the building (commit arson) and the insurance company would deny the claim.  Yes, this would be the worst case scenario, but a disgruntled tenant who vandalizes your building would also leave you with uncovered property damage.
Please consider the three points above when insuring your commercial property.  

Disclaimer:
This blog post is not a substitute for professional legal advice. This blog does not create an insurance agent-client relationship, nor is it a solicitation to offer legal/insurance advice. Seek the advice of a licensed insurance agent in the appropriate jurisdiction before taking any action that may affect your rights.