Tenant provides their own Building/ landlord liability insurance

Discussion in 'Commercial Property' started by Mark@Inverell, 4th May, 2022.

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  1. Mark@Inverell

    Mark@Inverell Well-Known Member

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    Looking at a lease where the tenant uses their own inhouse insurance for the building and public liability that are outgoings. They are a fortune 500 company.

    As a positive for cashflow, the landlord doesn't have money out waiting to be reimbursed.

    Of concern, you would have to be certain the building cover reflects the cost of replacement.

    What else? What do you all think?
    Cheers
     
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I would argue the property owner should by the insured party and own the process / policy. The tenant may then pay the outgoing. If the company wants to "facilitate" the cover for better pricing so be it and they could even directly pay but I would be wanting some degree of control to ensure the policy is held, maintained and also not cancelled or allowed to lapse. I dont imagine a lease says this is the tenant choice. Its more being considerate perhaps ? Imagine if they didnt pay ? Or cancelled it. Under insured ? Big companies may have assets but they also may refuse or fight a legal claim.

    The other issue may be policy wording or even suitable local support if its foreign. Imagine a US insurer rejecting or delaying claims because its in Australian dollars or to our standards. Had a client in that case. German insurer (parent company used them in Hamburg) who wouldnt pay a warehouse fire for 12-18 months and needed consultants they wouldnt pay for (!!) etc as they had no local knowledge, support etc. If they had a local policy the assessors would have been there next day.

    A solicitor should advise on lease implications and if the policy is unusual. .
     
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  3. shorty

    shorty Well-Known Member

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    The tenant wants to insure you against themselves? Whose name would the policy be in? Sounds like a bit of a conflict of interest - got more details?
     
  4. Mark@Inverell

    Mark@Inverell Well-Known Member

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    No the normal building insurance and public liability that you would normally take out as a landlord, then invoice them. Except the lease states they can undertake this through their own in-house insurance. They are a fortune 500 company and big enough to do this. All their sites throughout Australia are done this way, apparently. But I would definitely want my name on policy.

    The reply above sums up the risks.bit I need to dig deeper.
     
  5. Mark@Inverell

    Mark@Inverell Well-Known Member

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    Good response thank you. My solicitor didn't have a problem but I'll revisit this tomorrow.
     
  6. Mark@Inverell

    Mark@Inverell Well-Known Member

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    So an update on this.

    It is a clause in the lease that the lessee can source their own building and liability insurance, in this case Chubb and Swiss Insurance.

    The owner is listed as an interested party.

    The major issue to me is that the building is possibly under insured, which is probably common ATM due to rising material costs the last few years. At least both insurance companies have Australian branches. I haven't sighted the actual policies yet.
     
  7. Scott No Mates

    Scott No Mates Well-Known Member

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    It's typical of many of the leases that I deal with eg. Telstra, Optus both are self-insured (for PL & WC) however as they are generally ground leases the lessor doesn't own any of the improvements.

    Check if you are able to nominate the amount of coverage and the extras (demolition, consultants, loss of rent due to destruction/rebuild).

    You can only be listed as an interested party, not joint policy holder.
     
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  8. Mark@Inverell

    Mark@Inverell Well-Known Member

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    Thank you, that's helpful.
     
    Scott No Mates likes this.

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