Casualty Concepts in Leases

Landlords and tenants have varying insurance responsibilities depending on the type of lease and terms and conditions in the contract. In a space lease for a multi-tenant building, the tenant contributes to the landlord’s insurance and the landlord then controls any casualty proceeds. Additionally, tenants are responsible for obtaining separate coverage to protect their personal property. For a ground lease, either the landlord or tenant will obtain insurance for improvements.

When there are tenant improvements, the landlord is responsible for delivering the premises. In terms of financial contribution for the tenant improvements, it depends on the scenario whether the tenant, landlord or both parties need to pay these costs. The insurable interest and obligation to insure should be clarified in the lease.

When rebuilding a space, the landlord can limit the obligation to rebuild based on the availability of insurance proceeds. Several factors to consider when rebuilding a space include building valuation, business income, period of indemnity, ordinance and law building codes, deductibles, and who is insuring what – landlord versus tenant.

If a situation arises and a tenant needs to terminate the lease, the tenant has rights to consider. An important factor to evaluate in a lease termination is the percentage of the building damaged versus the tenant’s ability to remain in the premises. This includes the common areas and parking.

Insurance concepts related to leases include tenant improvement and betterments, builder’s risk insurance and installation floaters, tenant relocation, insurance for contractors hired by the tenant and/or the landlord, as well as liability insurance. Typical claims include visitor negligence, water damage arising out of maintenance work, mold, workers’ compensation and property insurance.

On November 7th 2019, Katherine Santarelli, Kimberly Min, Partner with Whiteford Taylor & Preston and Morenike Oyenusi, Senior Assistant County Solicitor from the Howard County Office of Law, presented on the topic “Where Law Meets Land and Structure” at the 2019 Maryland Bar Association Advanced Property Institute. This is Katherine’s second year presenting at this event.