There are no free lunches: The anatomy of office landlord/tenant insurance

We have been leasing office space for 30-plus years. In the first two decades, most of our prospective tenants were businesses that understood and knew the ins and outs of leasing office space and were represented by lawyers. Our investment focus has evolved over the last decade, and, today, our company markets turnkey, move-in ready, furnished space for an all-inclusive rent to small users, solopreneurs, professionals and startups.

So, today, many of our prospects and tenants are not as lease-savvy, they don’t hire attorneys and, when it comes to insurance matters, they are either unaware or don’t think they need it.

But the main thing to understand is the fundamental concept that both parties, landlords and tenants, are always required to have insurance. The landlord insures the building and any liability that comes from the owning and managing the said property. Every real estate relationship the property owner has — property managers, contractors, tenants — demands from that party a “certificate of insurance,” or COI.

So, if a tenant, one of its employees and/or visitors does something that damages the property, their insurance will cover those costs. In such a situation, the landlord would file a claim with its own insurance, which would in turn chase the tenant’s insurance for the costs of repair and to make the landlord whole. If the damage is greater than the amount of cover on the tenant’s policy, then the landlord’s insurance would pick up the difference. (That’s the simple version.)

Most of our prospects and tenants come from a home-based business, coworking spaces (like WeWork), executive offices (like Regus) or they are new startups. Most are not familiar with insurance and carry no insurance, so the concept of a COI is alien. What they don’t realize is that having insurance is imperative, and an average business owner’s policy can be purchased for a low as $400 a year. Coworking spaces and executive offices don’t emphasize that the client needs to get insurance. The reason for the obfuscation is understandable: Asking a client to get insurance puts an end to the sales process and kills any chance of an immediate sign-up.

We lease dozens of suites every year and, when we get to the insurance part of the leasing process, it’s always a hurdle and brings our leasing process to a complete stop, as the prospect has to go through a fast-track learning curve and scramble to buy insurance. They quickly understand the magnitude of not having insurance when it is demystified.

The fact is, if you are using or occupying any professional space, be it coworking or an executive office, it is in your very best interest to have insurance. The consequences of not having insurance can be catastrophic. If you or any of your visitors or guests cause damage, not only is the provider coming after you, but the provider’s landlord and their respective insurance companies are coming after you. Moreover, you will need to hire an attorney to represent you, and that alone can be a huge dollar cost. If you have insurance, your carrier will pay all these expenses and costs less your deductible.

For the purposes of disclosure, we have no monetary gain in promoting insurance. As a landlord, it protects us, and it protects our tenants when they have insurance. It’s a win for everyone if something goes wrong. Remember, there are no free lunches!

Christopher Jerjian is a co-founder, principal and former managing member of Ibis Plaza Office Suites in Hamilton. Since selling Ibis Plaza, Jerjian founded Kiwi Offices. He is responsible for development and leasing of office space, and the promotion of the Kiwi brand.