It's a widespread practice for business owners to rent or lease the commercial space they use to operate their business, which makes plenty of sense—prime commercial real estate is often owned by companies with large portfolios who lease it out to business owners who need all or part of a building where they can provide their products or services. However, renting or leasing business property does leave business owners susceptible to liability for damaging or destroying the property accidentally or negligently.
The best way to transfer that liability risk is with the right tenant legal liability insurance. Contact the experienced brokers at Morison Insurance to learn more about tenant legal liability and ensure you have the necessary coverage to avoid paying out of pocket should you be found liable for damaging your leased commercial property.
Tenant legal liability insurance is coverage for the loss of or damage to a leased property that is accidentally caused by the tenant, directly or indirectly. That means the damage doesn't have to be caused by the tenant (typically a business owner in a commercial lease)—their employees could also cause it, and the coverage will still apply.
No matter how much care you take to keep your leased commercial space in pristine condition, there are always ways that damage can occur that are beyond your control, and of course, accidents happen to even the most cautious people. Suppose the property suffers severe damage because of something you or your employees did. In that case, the property owner will hold you liable for the cost of repairs or complete building restoration, which can be astronomical. Suppose you have tenant legal liability as part of your business insurance package. In that case, you can get insurance compensation to cover the landlord's liability claim against you for the expense of repair and restoration up to the coverage limits listed on your policy.
These two types of coverage are similar but apply to different locations. Tenant legal liability is an extension of commercial general liability (CGL) that is usually not automatically included on a CGL policy and needs to be specifically added. While commercial general liability applies to third-party property damage, among other things, tenant legal liability insurance applies to damage or destruction of your leased commercial space.
For example, your employee accidentally leaves a faulty cleaning appliance plugged in overnight, and it overheats. It starts a fire that seriously damages your leased commercial space and the building next door. In that scenario, your tenant's legal liability insurance would apply to the damage caused to the unit you lease. In contrast, your commercial general liability would apply to the damage caused to the neighbouring building.
This is an excellent question to ask because many policyholders are surprised to learn that the coverage limit they have in place for commercial general liability insurance only sometimes applies to a tenant legal liability claim. Tenant legal liability is typically an extension that is added to a commercial general liability policy. As such, it has a sub-limit that is considerably lower than the overall liability limit for your CGL insurance policy. When you purchase tenant legal liability coverage, it's essential to consult with your broker about the potential risk factors you face at your unique business operation so your broker can ensure you have the right amount of coverage to get you the financial protection you need should you have to file a tenant legal liability claim.
These two types of coverage sometimes get mixed up because they both apply to situations where damage occurs. Still, they're very different because commercial property insurance is not a type of liability coverage. Tenant legal liability insurance coverage applies when a tenant is liable for causing damage to a rented or leased property. On the other hand, commercial property insurance applies to the cost of repairing, replacing or restoring an owned property and/or the belongings contained within.
In a situation where the tenant of a commercial space has commercial property insurance or commercial tenants insurance, it is generally contents coverage that covers the contents of the commercial property. That includes office equipment, furniture, appliances, signage, specialized equipment and any other items belonging to the tenant that are not a part of the building itself. It's a type of property insurance, not liability coverage, so it doesn't apply to liability scenarios in which the policyholder is allegedly liable for causing damage or destruction.
Tenant legal liability insurance is not required because the government does not mandate that you must have it, and that's also the case with most other types of business insurance. However, you can only expect to operate a business in a leased commercial space with suitable insurance coverage. It is good practice for landlords to require on a lease policy that their commercial tenants have certain coverages, including tenant legal liability insurance and adequate coverage limits. Suppose their building is damaged or destroyed by a tenant. In that case, they need to know that they'll be able to receive the necessary compensation to get their property restored to its former condition.
Landlords will typically require proof of coverage in the form of a certificate of insurance that lists the types of coverage and the coverage limits. So, while you aren't legally required to have tenant legal liability insurance, renting or leasing a commercial property will likely be necessary. Even if your landlord does not require this type of insurance coverage, it's not a good idea to go without it. Expenses such as fire damage restoration can run into the hundreds of thousands of dollars and keep climbing from there, and that could be enough to shutter your business permanently if you don't have the right tenant legal liability insurance in place to prompt your insurance provider to give you the necessary financial support for recovery.
Usually, tenant legal liability insurance applies to a specific commercial property that is being leased for business purposes. Depending on how your policy is written, you can also get coverage for spaces you rent temporarily. That could include additional office space that you rent for a short period or something like a hotel room that you rent while you're out of town for business purposes such as a convention.
One of the most common misconceptions about tenant legal liability insurance is that it provides coverage for the tenant's personal belongings, and that's certainly not the case. Suppose your property sustains accidental damage to your belongings. In that case, there's no element of liability involved, and you would need the right property insurance in place to get insurance coverage to repair or replace the damaged items.
Because tenant legal liability is a specialized type of coverage, there are many scenarios in which it does not apply. That being said, some of the situations or costs that people sometimes think it applies to when it actually does not are:
If you're not sure that you have the suitable types of coverage on your policy for the perils your Ontario business is most likely to encounter, call your insurance broker at 1-800-463-8074 and speak to them about your business practices, location and more. The more information you provide about how you operate your unique business, the better your insurance broker can search out the insurance you need and get you a quote for the right coverage to ensure you can continue growing your business's success.
This content is written by our Morison Insurance team. All information posted is merely for educational and informational purposes. It is not intended as a substitute for professional advice. Should you decide to act upon any information in this article, you do so at your own risk. While the information on this website has been verified to the best of our abilities, we cannot guarantee that there are no mistakes or errors.