Improvements and Betterments coverage is a type of property insurance for an insured who is leasing space from another. Often, a tenant will lease commercial space from a landlord and require permanently installed fixtures or improvements to carry on operations. The tenant does so at their own expense.
When this occurs, the landlord will often provide the insurance coverage on the building shell, but the tenant will need to maintain the coverage under their insurance policy. While these improvements and betterments are covered under the tenant’s policy, they are covered separately from the tenant’s personal property coverage because they are permanently installed on the property.
But what happens when the when the tenant leaves?
Improvements and betterments are permanently attached the building. And the Landlord must take care when addressing these issues with the next tenant. There are two criteria for improvement and betterment coverage to qualify for coverage on ISOs commercial property and business owners forms.
- The alteration must be part of the real property (building).
- The alteration must be “made or acquired” at the tenant’s expense.
If the next tenant enters into a lease requiring them to carry the improvements and betterments, would they meet the criteria for the improvements and betterments coverage? The answer is no! They did not make or acquire the improvements at their own expense. And this can cause a major gap in coverage for the Landlord.
This issue could be resolved by providing the coverage under the building coverage and having the coinsurance clause suspended on the limited limit. Understanding the exposures assumed in a lease and how the tenant’s policy responds is critical in preventing an uninsured loss.
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