If you’ve recently acquired a property and you’re looking to become a commercial landlord, you may be wondering what insurance you should require your tenants to carry. Join us as we dive deep into insurance requirements for triple net (NNN) leases. Please note, this article is the opinion of the STRATAFOLIO author. We highly suggest readers contact a licensed insurance professional and/or attorney for information.
Triple Net Lease Insurance
This requirement usually varies based on the type of lease. Under many gross leases, single net leases, and double net leases, the landlord is responsible for insurance coverage. But in a triple net lease, the tenant pays for insurance and is subject to certain requirements. Today, we’ll discuss the standard insurance requirements for an NNN lease.
Types of Insurance Commonly Required in a Triple Net Lease
When drafting or reviewing a tenancy agreement insurance clause in a triple net lease, landlords should clearly define the types of coverage tenants must maintain. Each policy serves a unique purpose in protecting both parties from financial loss.
Here are the most common insurance requirements in commercial leases:
- General Liability Insurance: Covers bodily injury or property damage occurring on the leased premises. This protects the tenant from claims by third parties and helps ensure the landlord isn’t drawn into liability disputes.
- Commercial Property Insurance: Covers the tenant’s personal property, inventory, equipment, and any improvements or alterations they make to the space.
- Workers’ Compensation Insurance: Required when the tenant has employees. It covers injuries or illnesses that occur on the job.
- Business Interruption Insurance: Helps tenants cover ongoing expenses, such as rent, if business operations are temporarily suspended due to a covered loss.
- Commercial Auto Insurance: Applies when company vehicles are used in operations, deliveries, or client services.
- Commercial Tenants Renters Insurance: Some landlords require this to ensure all tenant-owned assets inside the property are insured, separate from the building itself.
These policies collectively form the foundation of commercial tenant insurance requirements, reducing risk and maintaining compliance with the terms of the lease.
How Much Insurance Coverage Should a Tenant Carry in a Triple Net Lease?
When it comes to commercial lease insurance requirements, coverage limits often vary based on the tenant’s business type, the size of the property, and location. Landlords should always consult a licensed insurance professional; that said, here are general industry benchmarks:
- General Liability: Between $1 million and $5 million per occurrence is typical for most commercial tenants.
- Property Insurance: Should be sufficient to cover the full replacement value of the tenant’s property and improvements.
- Workers’ Compensation: Must meet or exceed the state’s statutory limits.
- Business Interruption Insurance: Typically covers 6 to 12 months of lost income.
Setting these minimum coverage thresholds ensures that both landlord and tenant remain financially protected under a properly structured triple net lease insurance agreement.
What Are the Usual Insurance Requirements for Triple Net Leases?
As a commercial landlord, you have the right to require that your NNN tenants carry insurance. General liability insurance and property insurance are the most important (and the most commonly required). Some landlords also require policies such as business interruption insurance, commercial auto insurance, and other policies.
An insurance clause in an NNN lease will likely have the following stipulations:
- The tenant must provide and maintain general liability insurance for the term of the lease.
- Your tenant must provide a certificate of liability insurance to the landlord.
- The tenant cannot amend or cancel insurance policies without a 30-day notice to the landlord.
- Any personal property kept on the premises is kept at the risk of the tenant only.
- The landlord must carry public liability insurance in the common area of the premises.
In most cases, the insurance clause will also provide the minimum required coverage amount for each category of insurance. These monetary amounts will depend on the circumstances and can vary greatly from one lease to the next.urance. These monetary amounts will depend on the circumstances and can vary greatly from one lease to the next.
How Landlords Verify and Monitor Tenant Insurance
Even the most well-drafted tenancy agreement insurance clause is ineffective without proper follow-up. As such, landlords should establish a routine to verify and monitor tenant insurance compliance throughout the lease term.
Here’s how to do it effectively:
- Request a Certificate of Insurance (COI): This document summarizes policy details, limits, and effective dates.
- Track Expiration Dates: Use a property management tool ike STRATAFOLIO to automate reminders before policies expire.
- Conduct Annual Reviews: Require updated certificates at each renewal to ensure tenants remain covered.
- Include Non-Compliance Remedies: Your lease should state that failure to maintain insurance constitutes a default under the lease.
Regular verification ensures all insurance requirements in commercial leases are met and reduces disputes if a claim arises.
Why Liability Insurance is Important
Here are a few of the reasons why your tenants need to carry liability insurance.
Protect yourself from potential tenant mistakes
You can’t control everything that a tenant does on your property. If an accident happens and the property is damaged, or if several workers’ compensation claims hit their business all at once, then liability insurance can make sure you still get paid and that the property damage is taken care of.
Divide risks and liabilities between yourself and the tenant
In most commercial leases, the landlord is responsible for repairs and maintenance, whereas the tenant is responsible for any damage that they cause beyond the normal levels of wear-and-tear. But if your tenant doesn’t have general liability insurance, you may end up being responsible for the full cost of repairs – even if the tenant directly caused damage to the property.
Ensure you get paid, even if unforeseen circumstances strike
Even the most responsible tenant can make a mistake that results in the destruction of the property they’re renting. If worse comes to worst and your building is irreparably damaged, then liability insurance will help pay for reconstruction. The burden on your tenant will be minimized, and you won’t have to take legal action against them in order to pay for reconstruction.
Landlord Insurance Responsibilities in an NNN Lease
Even though tenants cover most expenses in a triple net lease, landlords still need their own protection. A common misconception is that the landlord has no insurance obligations. In reality, most commercial lease insurance requirements include provisions for landlord coverage too.
Landlords should consider carrying:
- Building or Casualty Insurance: Protects the physical structure against fire, natural disasters, or vandalism.
- Public Liability Insurance: Covers shared or common areas like parking lots and lobbies.
- Loss of Rent Insurance: Compensates landlords if the property becomes uninhabitable due to a covered event.
- Umbrella Liability Coverage: Provides additional protection beyond standard policy limits.
Maintaining these policies ensures that both landlord and tenant share responsibility under a well-balanced triple net lease insurance arrangement.
How Insurance Requirements Differ by Property Type
Not all properties carry the same level of risk, which means commercial tenant insurance requirements vary depending on the type of business and property use.
- Retail Leases: Often require product liability insurance and higher general liability limits because of customer foot traffic.
- Industrial Leases: If hazardous materials are handled on-site, you might need pollution liability or environmental insurance.
- Office Leases: Typically have lower coverage minimums but may include data breach or cyber liability coverage for tenants storing sensitive information.
- Commercial Sublease Insurance: When tenants sublet part of their space, the subtenant should also maintain insurance naming both the primary tenant and landlord as additional insured parties.
Customizing requirements by property type ensures proper risk management across your portfolio.
Keeping Record of Your Tenant’s Insurance
Make sure to keep your tenant’s certificate of liability insurance in your records at all times. It will provide a summary of coverage limits, effective dates, and other important information. Unforeseen circumstances may arise, but you’ll be protected with general liability insurance.
