Lease Audit Information

TOPIC OF THE WEEK:

Insurance:

One of the increasingly complex and antagonistic common area maintenance issues is insurance. Many of the larger Landlords are choosing to insure multiple centers under a "master policy", and in many cases these policies contain "self-insured" provisions. On the surface, these programs should be of benefit to the tenant. However, some Landlords have discovered that this is also a prime area in which to make a profit.

Master Policies:

By insuring multiple centers under a single "master" policy, Landlords are able to reduce the insurance cost to each individual center. However, we have found that there are many ways to take advantage of such a program - from including coverage for personal items (such as houses and boats) in the policy, to using creative allocation methods in order to take in more money from the centers than they are actually paying for the insurance policy.

Self-Insurance:

The basic idea behind "self-insurance" is that the Landlord will act, to a point, as its own insurance company. The Landlord purchases actual insurance with a very high deductible, thereby keeping the insurance premium low. They then create a separate fund from which to cover losses up to the amount of the deductible. Both of these costs, the amount of the fund and the high deductible premiums, are included in CAM or paid by the tenants. 

This sounds like a good idea and would be the most equitable way to insure a property for both Landlord and Tenant if the Tenant were treated as a partner in this program. The premiums would remain low and the actual losses would rarely reach the threshold or amount of the fund. However, this would only be equitable for the Tenant if the Landlord refunded the unused portion of the fund. In most cases, the Landlord keeps any unused portion of the fund and does not refund or credit the unused amount to the Tenants or CAM. In addition, we have found that Landlords include administrative, overhead costs and fees to manage this program. These types of expenses may already be covered by an administrative fee or other pertinent lease provision.

See also: Best Buy v. DDR

In both cases, it is important to be able to understand what is covered by the policy (or policies), how the costs are allocated to your center (if they are allocated) and what costs (premiums, payments under the deductible, "self insured" losses, administrative costs and overhead) may be included in the program.

*And remember, if your Landlord will not allow you to review the insurance policy, declarations pages or any other pertinent insurance information, there may be a reason.

If you have any questions, concerns or ideas for this site, please do not hesitate to contact us!