You’ve found the perfect spot: a storefront on a busy corner in Franklin, a flex space in Smyrna, or an office suite in Mt. Juliet. The landlord sends over a 40-page lease, and somewhere in the middle there’s a section called “Insurance” or “Indemnification.” It’s easy to skim. It’s also one of the sections most likely to cost you money later. Here’s how to read commercial lease insurance requirements before you sign.
Quick takeaway
- Commercial leases often require specific liability limits, property coverage, and proof of insurance before you get the keys.
- Terms like “additional insured,” “waiver of subrogation,” and “primary and noncontributory” change how your policy responds.
- Improvements you pay for, like a buildout, often need to be insured by you, not the landlord.
- Send the insurance section to your agent before you sign so there’s time to fix gaps.
Why landlords require insurance
A landlord wants to know that if something goes wrong in your space, like a customer slips, a fire starts in your kitchen, or a pipe you installed leaks, there’s insurance to pay for it besides theirs. The lease shifts some of that risk to you and requires you to carry insurance to back it up.
Most requirements fall into a few categories.
Common insurance requirements in commercial leases
General liability
Almost every commercial lease requires commercial general liability (CGL) insurance. The lease will usually set minimum limits, often written as a per-occurrence limit and a general aggregate limit. Our guide to general liability insurance explains how those numbers work.
Property coverage for your stuff
Your landlord’s property policy covers the building. It generally doesn’t cover your inventory, equipment, furniture, or computers. The lease may require you to insure your business personal property, sometimes at replacement cost.
Tenant improvements and betterments
If you pay to build out the space, with new walls, flooring, lighting, counters, or a kitchen, the lease may say who owns those improvements and who must insure them. Often it’s you. Make sure your property limit includes the cost of improvements you paid for.
Business income
Some leases require business income coverage so you can keep paying rent after a covered loss. Our BOP 101 guide explains how many small businesses get property, liability, and business income in one package.
Other coverages leases may require
- Workers’ compensation if you have employees
- Commercial auto if you use vehicles in the business
- Umbrella or excess liability for higher total limits
- Liquor liability for bars, restaurants, and event spaces that serve alcohol
- Plate glass coverage for storefront windows, in some leases
Contract language that changes your coverage
Additional insured
The lease may require you to name the landlord, and sometimes the property manager and lender, as additional insureds on your liability policy. That gives them some protection under your policy for claims arising from your operations. Many carriers handle this with an endorsement. Check the exact names the lease requires.
Waiver of subrogation
When an insurer pays a claim, it can sometimes try to recover that money from whoever caused the loss. That’s subrogation. A waiver of subrogation means you, and your insurer, agree not to go after the landlord, and often the landlord agrees not to go after you. Your policy needs to allow the waiver, often through an endorsement. If the lease requires it and your policy doesn’t include it, you could breach the lease.
Primary and noncontributory
This language means your policy pays first, before the landlord’s policy, and won’t seek contribution from it. Your policy may need an endorsement to meet this requirement.
Notice of cancellation
Some leases require advance notice to the landlord if your policy is canceled. Carriers handle notice differently, so ask your agent what’s possible.
Indemnification
The indemnity clause says who’s responsible for what. Some leases ask the tenant to defend and pay for claims beyond what insurance would normally cover. Your general liability policy may cover some contractual liability, but not everything. Have an attorney review indemnity language you’re unsure about.
Steps to take before you sign
- Send the insurance and indemnity sections to your agent as early as possible.
- Ask for a side-by-side of what the lease requires and what your current policy provides.
- Price the gaps, like higher limits, endorsements, and improvements coverage.
- Negotiate if needed. Some requirements, like unusually high limits for a small office, may be negotiable.
- Get your certificate of insurance issued with the correct additional insured names before move-in.
- Calendar your renewal so updated certificates go to the landlord on time.
Common mistakes tenants make
- Signing first and calling the agent later. Gaps are easier to fix before signing.
- Assuming the landlord’s policy covers your stuff. It usually doesn’t.
- Underinsuring the buildout. Improvements can cost more than equipment.
- Missing endorsements. A certificate alone doesn’t create additional insured status or a waiver of subrogation.
- Forgetting to update when you expand, add a location, or change what you do in the space.
Leasing around Middle Tennessee
Commercial space in Nashville, Franklin, Murfreesboro, Hendersonville, and Gallatin ranges from shopping centers with national management companies to small buildings owned by local families. Larger landlords often use detailed, standardized requirements. Smaller landlords may be more flexible. Either way, read the lease carefully.
Frequently asked questions
What insurance do I need to lease commercial space?
Most leases require general liability and often property coverage for your belongings and improvements. Some also require business income, workers’ compensation, umbrella, or other coverages. The lease sets the requirements.
What does it mean to name the landlord as additional insured?
It extends some of your liability policy’s protection to the landlord for claims arising from your operations. It’s usually done with an endorsement, and the exact wording matters.
Is a waiver of subrogation bad for me?
Not necessarily. It’s common in commercial leases and is often mutual. Your policy must allow it, though, so ask your agent before you agree.
Does my landlord’s insurance cover my business property?
Generally not. Your landlord’s policy usually covers the building. Your own policy covers your inventory, equipment, and often your improvements.
Next step
A lease is easier to negotiate before you sign it. Learn more about business insurance with Eric Henry, Insurance Agent, and send Eric the insurance section of your lease so he can compare it with your coverage and price any gaps.
Coverage descriptions are general information only; your policy documents determine actual coverage. Availability varies by carrier.
