Understanding Your Lease - Requirement for Insurance and Indemnities
A lease will likely require the lessee to take out a minimum amount of public liability insurance and in some instances, plate glass insurance. The lessor should be made to insure the building against fire and damage – however as set out above this may in turn be a cost that is contributed to by lessees via the outgoings.
Often if what a lessee does in the property increases the risk of loss and the lessor’s insurance costs go up, the lessee will have to pay the extra premium.
Typically the lessee must provide the lessor with a copy of the required insurance policies at the time of entering the lease. Many leases will require that those policies either note the lessor as a co-insured or at least as an interested party. Some leases will even go to the extent to direct a lessee as to how, when and where any insurance payouts must be paid.
It is very important for a lessee to provide a copy of the proposed lease (or at least the insurance policy requirements sections of the lease), to their insurance broker so as to ensure that they can in fact obtain policies in the terms required by the lease. It is not uncommon for insurers to refuse to issue a policy in the exact terms required by a lease. Unless a lessee negotiates to amend those requirements under the lease they can find themselves in technical breach of the lease. These types of breaches can often be exploited by unscrupulous lessors who may be looking for any reason to terminate the lease for breach if it suits their purposes to do so.
It is also conventional for a lessee to indemnify the lessor against certain losses. Of particular concern, however, are indemnities that make the lessee liable for the actions of its visitors outside of the leased premises (e.g. if a visitor damages another part of the lessor’s building or property), irrespective of the degree of control that the lessee has over those people. This can cause problems in the future for shareholders of a lessee company who wish to sell their shares or the lessee directly if they wish to sell the business as a whole, as prospective purchasers may reduce the price they are willing to pay to reflect the risks inherent in such indemnities.
Dooley & Associates can provide you with detailed advice in relation to your obligations under your lease, so you understand the risks you are taking on in entering into the lease.Back