Insuring your triple net lease property is an important component of protecting your investment. While insurance is a known necessity for any type of property, there are some added complexities to commercial buildings that you need to understand so you can properly negotiate your tenant contracts and avoid the profit-stealing scenario of learning you’re not covered for something that’s happened to or on your property, only after the fact.
This post will help you understand more about 2 common triple net insurance policies:
- Property and Casualty Insurance
- Commercial General Liability Insurance
We will also explore what each policy covers (and what it doesn’t), and who’s responsible for the premiums.
Property and Casualty Insurance
Property and casualty insurance protects your triple net property from “perils” brought about due to:
- Smoke Damage
- Other Disasters
What’s not covered in most property and casualty insurance policies?
The “other disasters” is where limitations will typically apply to your insurance coverage. Most property and casualty insurance policies do not cover floods (natural or otherwise), earthquake damage, or damages brought about by riots or pollution.
However, if your property is located in a flood plain, you can often obtain some level of protection with an insurance plan specifically for flooding. Likewise, if your triple net property is in a region with high seismic activity, you can obtain protection through federal programs to safeguard against earthquake damages as well. These policies, though, would be separate and in addition to your property and casualty insurance.
What parts of your property are (and aren’t) covered?
Another aspect of property and casualty insurance that you need to account for is exactly which parts of your building are covered in the policy. Typically, the following parts of the building are included in property and casualty coverage:
- Interior Walls
- Exterior Walls
- Parking Structures
However, there are parts of your building and structure that are not generally covered in this type of policy (but can be covered in a separate, additional policy), including:
- Heating/Cooling System
- Other Vital Systems
- Monetary Losses (such as lost rent payments for the landowner or business income as the tenant)
Commercial General Liability (CGL) Insurance
Accidents happen, and it’s prudent to have CGL insurance in place on your commercial property to protect yourself and your tenants in the event that someone is injured on your property or items or equipment belonging to someone else suffer damage while on your premises.
This type of policy is structured to protect the property owner and the tenant in claims made by other and will provide you with representation and settlement funds should an injury or accident damaging another’s property occur on site.
What’s not covered in a CGL policy?
- Damages to items or equipment that are your (or your tenant’s) responsibility, such as rented equipment
- Intended damages to items while on your property (or inaction leading to a damage)
Property Owner Vs. Tenant: Who Pays for Commercial Real Estate Insurance Policies?
So, who’s ultimately responsible for insuring different aspects of a triple net property?
The truth is, it depends.
There’s no hard-and-fast rule that dictates what insurance premiums property owners and tenants are required to cover and pay each year. This is because each unique deal will be the result of a negotiation between the landowner and the tenant. Sometimes, in CGL policies for example, both the parties will be named on the policy even if only one is responsible for the premium.
The decision of who pays what in triple net property insurance is really up to what’s negotiated. Even in joint policies, the property owner and/or the tenant may also need additional policies to cover their personal interests in the building or business.
There are a lot of different options and variations in commercial real estate insurance and working with an expert who knows the ins and outs of the policies is your best bet anytime you’re looking at moving forward on an investment property. They can help you make sure your investment is not only properly insured, but that premium payments are fairly allocated as well.
Sands Investment Group has proven expertise in triple net property deals, and we can advise you on the different insurance policies you need in place to protect your investment from damage and lawsuits in the long-term.
Want to learn more about NNN properties for sale and speak with an industry expert about current commercial investment opportunities? Get in touch with an expert today by calling 844.4.SIG.NNN or sending us an email at info@SIGnnn.com.