Entering into commercial lease agreements without a sound understanding of the insurance implications can put parties, both landlords and tenants, at risk. Attorneys Stacey Tyler and Stephen Tanico deliberated on the importance of comprehensive insurance knowledge as part of real estate transactions. In conversation with Lynda A. Bennett, chair of Lowenstein’s Insurance Recovery Group, the trio explored some of the critical issues everyone involved should be equipping themselves with before signing any lease agreements. JD Supra reports.
One of the key topics highlighted was the precariousness of lease clauses that are oversimplified. Statements such as “The usual and customary insurance will be put in place” are seemingly benign but can result in unforeseen consequences due to the ambiguity of what ‘usual and customary’ entails.
Over-complication of lease clauses can also lead to confusion and dispute. Detailed, dense legal jargon might obscure the understanding of responsibilities and the courses of action if an insurable event occurs. Precise, unambiguous wording, which clearly outlines the obligations of all parties, is the most reliable approach.
The lease should explicitly provide what types and amounts of insurance are required. It isn’t enough to specify property insurance; the text needs to elaborate what risks are covered – fire, flood, public liability, and so on. There should also be clear instructions regarding the process of adjusting losses, claims handling, and remedies for any breaches of the insurance provisions. Parties should be wary of replacing a lengthy lease with a shorter form without considering the insurance ramifications.
Furthermore, the experts emphasized that both parties must consider the holistic aspects of their financial protection plan. This includes but is not limited to ensuring sufficient coverage, verifying the insurer’s creditworthiness, understanding the financial implications of deductibles, and obligations concerning loss adjustments. They also suggested considering the potential overlap of different insurance policies and how this could affect claims management.
Cross industry collaboration between insurance and real estate professionals is crucial to avoid pitfalls and protect the interests of all parties in a lease agreement. Ignorance is not an excuse considering the potential financial impact and legal repercussions that may arise from inadequately addressed insurance clauses in lease agreements.