Focus on liability insurance: does my commercial lease need it?

In this Article:

• Doesn’t my landlord’s insurance cover the space?
• My landlord is asking to be named on my policy. What’s that about?
• What kind of insurance do I need for a commercial lease?
• Understanding tenant improvement coverage 
• Other types of coverage you may need
• Frequently asked questions
• Learn more about commercial lease insurance

Whether you are just starting out, or your company has grown to the point where you are moving into a commercial space, you may be wondering if your commercial lease requires you to carry liability insurance.

The answer to this question is a resounding, ‘probably.’ You can check the terms of the lease itself to determine if it is required.  But even if liability insurance isn’t required under the terms of your lease, it’s a good idea to have it. Let’s break it down.

Doesn’t my landlord’s insurance cover the space?

Your landlord should have insurance coverage that protects their interests. In other words, their coverage is for damage to the premises, such as damage to the building itself due to a fire. But this does not cover your property, such as furniture or equipment, including computers. Likewise, your landlord would likely be liable if someone slipped and fell on the steps of the building because the landlord didn’t keep them clear of snow or ice. But if someone slips and falls inside your office or store because the floor is wet, that’s likely on you.

Your landlord’s insurance protects your landlord’s property – not yours, and not your customers’. That’s why most landlords will require you to have your own liability insurance. It protects you, which helps to secure the future of your business – you’re less likely to go out of business if you have a large claim.

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My landlord is asking to be named on my policy. What’s that about?

Your landlord may request to be named as an additional insured on your policy. This is pretty standard procedure and may not cost extra. It simply means that if your landlord is sued for something that is covered under your policy, they’ll have coverage from your policy in certain instances. It doesn’t cover your landlord for claims that are unrelated to you.

Related: Certificate of Insurance – what is this?

You will likely be asked to provide a certificate of insurance to prove to your landlord that you have the coverage they require. A certificate of insurance, sometimes called an ACORD, shows what kind of coverage you have and what your limits are. If you’re a Hiscox policyholder, you can get a CoI instantly by visiting www.hiscox.com/manage-your-policy.

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What kind of insurance do I need for a commercial lease?

Your lease may specify the type and amount of insurance that your landlord requires. The most basic coverage is general liability, sometimes referred to as GL. It will cover you for third-party claims of property damage or bodily injury. In other words, it’s for a claim that you damaged someone else’s property or caused someone else (not you or an employee) to suffer bodily injury. This is the minimum coverage most leases require.

Some leases will require a business owner’s policy, sometimes called BOP. This is general liability coverage, plus coverage for loss, damage, or theft of your own business property, like tools, equipment, and computers. It also covers improvements you may have made to your rented space and business interruption, which covers income you may lose due to your space being unusable. General liability coverage is included in a business owner’s policy, so you need one or the other, but not both.

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Understanding tenant improvement coverage

When you lease commercial space, any improvements you make to that space—such as installing new flooring, building office partitions, adding custom lighting, or creating specialized work areas—represent a significant investment. Standard landlord insurance typically doesn't cover these tenant improvements. If the building experiences a fire, flood, or vandalism, you could lose thousands of dollars in improvements without proper coverage. A business owner's policy includes tenant improvement coverage, protecting your investment in the space and ensuring you can restore your customized workspace after a covered loss. This protection is particularly crucial for businesses in industries like salons, medical offices, restaurants, or retail stores where specialized build-outs are essential to operations

Even if your lease does not specify that you need to have liability insurance, it’s always a good idea. A claim or lawsuit for bodily injury or property damage, or loss or damage to the tools you need to do your work can be prohibitively expensive for a small business.

Here’s an example of why you should have a business owner’s policy when you lease commercial space, whether the landlord requires it or not. Suppose your business has a rented space to which you made improvements, like new hardwood floors and office partitions. One night, the building is broken into. It’s vandalized, with damage to walls and floors, and equipment is stolen from several offices, including yours. Your BOP policy would likely cover the theft of your equipment and the cost of repairing the floors and walls. It could also cover the income you lost because you were unable to work until the space is repaired and your equipment is replaced.

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Other types of coverage you may need

You may need other types of coverage as well for incidents unrelated to your lease. If you have a website, accept credit cards, or store customer information, you should have cyber insurance. If you offer advice to customers, consider professional liability coverage. If you have employees, you may be required to have workers compensation insurance. For more information on what kind of insurance is best for your business, visit www.hiscox.com to get a free quote.

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Frequently asked questions

Can my landlord require me to carry more insurance than I think I need?  

Yes, landlords have the right to specify minimum insurance requirements in the lease agreement as a condition of renting to you. Common requirements include general liability coverage of at least $1 million per occurrence and $2 million aggregate. Some landlords may also require a business owner's policy instead of just general liability. These requirements protect both the landlord's interests and your business. If you cannot meet the insurance requirements, the landlord may refuse to rent to you or terminate your lease. Review insurance requirements carefully before signing any commercial lease.

What happens if I let my liability insurance lapse while leasing commercial space?  

Allowing your liability insurance to lapse while under a commercial lease typically violates your lease agreement and can have serious consequences. Your landlord may have the right to terminate your lease, require you to vacate the premises, or purchase insurance on your behalf and charge you for the premium (often at a much higher rate than you'd pay directly). You'll also be personally exposed to liability for any claims that occur during the lapse period. Set up automatic payments and renewal reminders to maintain continuous coverage. If you're having difficulty affording coverage, speak with your insurance provider about adjusting your deductible or coverage limits rather than canceling.

Does adding my landlord as an additional insured increase my premium?  

In most cases, adding your landlord as an additional insured on your general liability policy costs little to nothing extra. It's a standard endorsement that insurance companies expect and price into their base rates for commercial policies. However, you should verify this with your specific insurance provider. Some policies include additional insured endorsements automatically, while others charge a small fee per endorsement. The cost is typically nominal compared to the benefit of meeting your lease requirements and maintaining a good relationship with your landlord.

What's the difference between a certificate holder and an additional insured?  

A certificate holder is simply someone who receives proof that you have insurance—they have no coverage under your policy. An additional insured actually gains coverage under your policy in certain circumstances, specifically for claims arising from your operations or occupancy. Landlords often require both: being named as certificate holder so they can verify you maintain coverage, and being named as additional insured so they have protection if they're sued for something related to your tenancy. These are separate designations on your policy, and both are typically included in the certificate of insurance you provide to your landlord.

Can I use home-based business insurance for a commercial lease?  

No, home-based business insurance is designed specifically for businesses operating from residential properties and won't meet commercial lease requirements. Commercial landlords require commercial general liability policies that provide appropriate coverage limits and meet commercial property standards. Home business policies typically have lower limits and different coverage terms unsuitable for commercial spaces. Once you move into commercial space, you need to upgrade to a standard commercial policy, either general liability alone or a business owner's policy depending on your landlord's requirements and your business needs.

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Learn more about commercial lease insurance

Why you need general liability insurance – Discover why general liability is the foundation of commercial lease coverage, what it protects against, and how it meets landlord requirements for business tenants.

How to choose the best insurance for your small business – Determine which coverage types your business needs beyond lease requirements, from professional liability to cyber security and workers compensation.

Business owner's policy: comprehensive protection for your business – Learn how a BOP combines general liability with property coverage to protect both your lease obligations and your business assets in one policy.

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