Insurance Coverage For Tenants’ Improvements and Betterments

April 17, 2017

When it comes to business personal property and tenants’ improvements and betterments, the waters can be muddy as it relates to ownership interests. For property managers, though, understanding who is responsible for what can be a critical matter—especially if a claim is filed. In this post, we’ll explore the differences between business personal property and tenant’s improvements and betterments, and we’ll also give direction as to what to look for in terms of coverage to ensure protection.

Coverage For Business Personal Property Vs. Coverage For Tenants’ Improvements and Betterments

Before we dive into the nuances of insurance and coverage, let’s first define what we mean as it pertains to business personal property and tenants’ improvements and betterments:

Business Personal Property

Investopedia defines business personal property as, “Buildings owned by the business, as well as fixtures, equipment and materials considered permanent; personal property owned by the business; and improvements and personal property of parties other than the insured.”

Tenant’s Improvements and Betterments

A working definition of improvements and betterments is, “Anything that a tenant attaches to the landlord’s real estate that will become a permanent part of that real estate. A tenant attaches something to a building.”

A recent IRMI article states that property policies vary as to whether tenants’ improvements and betterments are covered under the building category or under the contents category, so care must be taken to assign these values to the proper category of covered property.

In addition, the language in a lease might determine ownership interest for both the landlord and tenant as it relates to improvements and betterments. This could, in turn, impact whether coverage will be provided should damage or destruction of the property occur.

When Should a Property Manager Ask For The Coverage From Tenants?

Property Managers must closely review any lease to determine:

  1. Which party owns a given item of property within the leased premises
  2. Whether the landlord is required to replace any damaged or destroyed property within the leased premises
  3. Which party was obligated to obtain insurance for a given item of property

Ideally, Law360 states that the lease language will address these issues consistently, so that the line drawn between property “owned” by the landlord or the tenant mirrors the line drawn between the property to be insured by one party or the other. The language is not always consistent or clear, however, which may add further complications in sorting through the parties’ respective rights and obligations. It’s important to consider that:

“In a tenant’s insurance policy, the scope of coverage for tenant improvements will typically be addressed by the general definition of “personal property” and any specific provisions that relate to coverage for tenant improvements and betterments, furniture, fixtures, and equipment and the like. For example, a tenant’s policy may explicitly state that personal property includes improvements and betterments installed in any premises owned, leased or occupied by the insured. Absent such an explicit provision, a general definition of personal property may refer to property owned by or in the possession of the insured.”

In conclusion, when reviewing policy information for tenants, it’s critical to review all applicable language in policies and leases and consider the potential for conflicting terms. Especially when disputes arise, the parties should consider any jurisdiction-specific case law that may clarify their rights and duties. Ultimately, an understanding of how the provisions of the policies and the lease fit together (or fail to fit together) will be essential in determining where each party’s obligations begin and end.

Minimize Risk With Insurance Tracking Services

Property managers and landlords have a lot of considerations when it comes to their real estate insurance protection. Utilizing insurance tracking services backed by an expert insurance team will help ensure you have proper protection across all of your properties and tenants.

Certificate of insurance tracking services like myCOI exists for one reason: to help organizations handle the everyday tasks of managing certificates of insurance and protect against underinsured claims, costly litigation and failed audits. The software is an easy-to-use, cloud-based solution developed and supported by a team of insurance professionals and is built on a foundation of insurance industry logic to automate the certificate of insurance communication process and ensure you remain protected.

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