Do you own a building and lease it as an office, retail, or warehouse? If so, lessor’s risk only insurance is a must-have if you want to protect your investment, because you never know what could happen. A slip-and-fall or a fire breaking out on your commercial property could result in disaster, and your hard work – and dependable stream of income – may be at risk.
Lessor Risk Only insurance helps safeguard you from these and other potential risks.
What is Lessor’s Risk Only Insurance?
Lessor’s risk insurance protects a building owner should a tenant sue them for property damage or injuries sustained by the tenant or tenants’ employees while in the landlords building.
Lessor’s risk insurance is a common among owners of commercial office space, retail buildings, malls, shopping centers, warehouses, and apartment complexes.
It is often bundled into an insurance package that includes general liability and commercial property insurance, but is its own distinct form of coverage.
What Does Lessor’s Risk Only Insurance Cover?
Lessor’s risk insurance covers a wide range of risks that lead to property damage or bodily injury that can happen on a property that is leased to a tenant, such as:
- Slips and falls
- Fire
- Sewer/drain backup
- Burst pipes
- Vandalism
- Theft
- Weather-related damage
The lessor’s risk policy would cover reimbursement for the tenant’s physical injury and property loss. It also may cover the landlord’s legal fees.
Lessors Risk VS General Liability Insurance
Both types of insurance cover claims around bodily injury and damaged property that occur in the building. So, what’s the difference?
Lessor’s Risk Only applies exclusively to your tenants.
Say a tenant slips and falls on the stairs of your building and blames you for the stairwell’s poor lighting. Your LRO would take care of the repercussions.
But what if it was a delivery person (third party)? A general liability policy would respond instead of the LRO. LRO does not cover third party claims.
General liability protects the landlord against lawsuits by third parties, while lessor’s risk insurance is specific to the tenant’s activities on the property.
Lessors Risk Vs Commercial Property Insurance
Lessor’s risk will not cover your building from physical damages, such as fire, vandalism, theft, windstorms, and hail. In order to have coverage against these risks, you would need commercial property insurance. Lessor’s risk only applies to liability.
A landlord must not occupy more than 25% of the building that is being leased to tenants (i.e., the remaining 75% of the building must be occupied by tenants – you cannot qualify for lessor’s risk unless this is the case.)
What Doesn’t LRO Insurance Cover?
- Damage or injuries incurred by a third party. You need General Liability to protect yourself from claims against a third party.
- Building Damage. For building protection, you need commercial property insurance.
- Damages to the tenant’s own property. They will need to have their own insurance policy for that.
- Criminal Negligence. It does not cover incidents caused by a landlord’s criminal negligence.
LRO should not be purchased as a “standalone” or “all-encompassing” insurance package, as it alone cannot fully insure your business against every potential damage or loss.
Do you require your tenants to carry their own general liability insurance? This is a crucial loss control technique because, as the landlord, you may have to pay claims that aren’t your fault if the tenants are not insured.
Reasons to Consider Lessor’s Risk Insurance
Purchasing insurance is an important decision for your business. As a landlord, your goal is to protect your investment and limit your liability. Here are a few reasons why you should consider lessor’s risk only insurance:
- Minimizes financial loss. Your property’s rental income is shielded from tenant injury and property damage claims.
- Covers legal fees. Lessor’s risk insurance covers not just claim settlements but also legal fees. So, whether the tenant wins or loses the case, the policy takes care of your legal costs.
- Protects your reputation. Your reputation is key to attracting and retaining high-quality tenants. Lessor’s risk insurance gives your tenants confidence that they will be compensated if something ever goes wrong.
The coverage limit is the maximum amount the insurer will pay for a single loss.
If the tenant’s injury or loss exceeds this limit, you as the building owner will be responsible for the difference.
Lessor’s risk-only insurance can be a little confusing if you are new to renting a property, but this is essential coverage that landlords cannot skimp out on!
The commercial insurance experts at Streamlined Business Insurance are here to help if you need assistance tailoring a policy that protects your investment – and your peace of mind.
