Insurance Requirements in Commercial Lease Negotiations: A Tenant's Checklist

Most commercial tenants spend weeks negotiating rent, tenant improvement allowances, and renewal options. Then they spend approximately fifteen minutes on the insurance exhibit attached to the lease. This is a mistake that can cost more than every rent negotiation combined — because the insurance provisions in a commercial lease determine who bears the financial risk when something goes catastrophically wrong.

A fire, a burst pipe, an earthquake, a liability lawsuit — the lease’s insurance provisions dictate who insures what, who is protected, who can subrogate against whom, and who absorbs the loss when coverage is inadequate or absent. Sign the wrong insurance provisions and you may find yourself responsible for a building you do not own, indemnifying a landlord for their own negligence, or discovering after a loss that your policy does not match what your lease requires.

This article is a practical checklist for tenants — a section-by-section guide to reading, understanding, and marking up the insurance provisions in a commercial lease. It ties together the coverage concepts addressed in our articles on NNN lease insurance traps, waivers of subrogation in commercial leases, and the landlord’s duty to disclose.

Why Lease Insurance Provisions Matter More Than Rent

If you negotiate your rent down by $2 per square foot on a 3,000-square-foot space, you save $6,000 per year. If you fail to negotiate the insurance provisions and a covered loss exposes a gap, you could face $200,000 in uninsured liability, a lease default, eviction, or a lawsuit from the landlord — in addition to your own uninsured property losses.

The insurance provisions determine:

• Who insures the building shell vs. the tenant’s improvements vs. contents. In a triple net lease, the tenant may be responsible for insuring the building itself — a structure the tenant does not own. The consequences of getting this wrong are severe.
• Who can sue whom after a loss. A waiver of subrogation prevents one party’s insurer from pursuing the other party for causing a loss. Without mutual waivers, you could pay for your insurance, have your carrier pay your claim, and then have the landlord’s carrier sue you to recover what it paid.
• Who absorbs the cost of a gap.If the lease requires you to carry $2 million in liability coverage and your policy only provides $1 million, you are personally responsible for the difference — and you are in breach of the lease.
• Whether you can rebuild after a loss.If the lease allocates building insurance to the landlord but the landlord fails to carry it, the building may not be rebuilt — and you have no premises, no business, and potentially no recourse.

The Standard Insurance Clauses: What to Expect

Commercial leases typically include an insurance exhibit or article that addresses the following topics. Each one deserves careful review.

Tenant’s Required Coverages

The lease will specify the types and minimum limits of insurance the tenant must carry. Standard requirements include:

• Commercial general liability (CGL). Typically $1 million per occurrence and $2 million aggregate. Some landlords require $5 million or more, which may require an umbrella or excess liability policy.
• Business personal property (contents) coverage.Covers the tenant’s inventory, equipment, furniture, and fixtures. The lease may specify a minimum limit or simply require coverage for the full replacement cost of the tenant’s property.
• Tenant improvements and betterments.Coverage for the tenant’s build-out — walls, flooring, fixtures, and other improvements the tenant installed. This is distinct from the landlord’s building coverage and can be a significant coverage gap if overlooked. See our tenant improvements and betterments article for a detailed analysis.
• Workers’ compensation. Required by law if the tenant has employees. The lease may specify minimum limits, but statutory requirements in California generally set the floor.
• Business income / loss of income. Some leases require the tenant to carry business interruption coverage sufficient to cover continuing lease obligations (rent) during a shutdown period.
• Automobile liability.If the tenant’s operations involve vehicles on or near the premises.

Landlord’s Insurance Obligations

The lease should also specify what the landlord insures. In a standard gross lease or modified gross lease, the landlord typically insures:

• The building shell and structure
• Common areas
• The landlord’s own liability
• Loss of rental income during restoration

In a triple net lease, some or all of these obligations may shift to the tenant. Read the lease carefully to determine exactly which party is responsible for which coverage. If the language is ambiguous, clarify it before signing — not after a loss.

Additional Insured Requirements

Nearly every commercial lease requires the tenant to name the landlord (and often the landlord’s property manager, lender, and other parties) as an additional insured on the tenant’s CGL policy. This means the landlord is covered under the tenant’s liability policy for claims arising out of the tenant’s use and occupancy of the premises.

What to watch for:

• Scope of additional insured status.The lease may require “additional insured” status that is broader than what standard ISO endorsements provide. Some leases require the landlord to be covered for the landlord’s ownnegligence — not just claims arising from the tenant’s operations. This may require a specific endorsement form and may not be available from all carriers.
• Primary and non-contributory.The lease may require that the tenant’s policy respond as “primary and non-contributory” — meaning it pays first, without contribution from the landlord’s own policy. This requires a specific endorsement on your policy.
• Multiple parties.Some leases require you to name the landlord, the property management company, the landlord’s lender, and the landlord’s parent company as additional insureds. Confirm that your carrier can accommodate all required parties.

Waiver of Subrogation

A waiver of subrogation prevents one party’s insurer from pursuing a recovery against the other party after paying a claim. In a commercial lease context, a mutual waiver of subrogation means:

• If the tenant’s negligence causes a fire that damages the building, the landlord’s insurer cannot sue the tenant to recover what it paid the landlord
• If the landlord’s negligence causes a water leak that damages the tenant’s property, the tenant’s insurer cannot sue the landlord to recover what it paid the tenant

Mutual waivers of subrogation are standard in commercial leases and generally benefit both parties. The critical issue is making sure the waiver is mutual— not one-sided — and that your insurance policy actually permits the waiver. If your policy prohibits waivers of subrogation and you sign a lease containing one, you may void your own coverage.

Certificates of Insurance

The lease will require you to provide a certificate of insurance (typically an ACORD 25 or ACORD 28 form) to the landlord before taking possession and at each policy renewal. Understanding what a certificate proves — and what it does not — is essential.

A certificate of insurance is a snapshot. It confirms that certain coverages existed at the time the certificate was issued. It does not:

• Guarantee that the policy will remain in force
• Create any rights for the certificate holder beyond what the policy itself provides
• Modify the policy terms in any way
• Prove that the additional insured endorsement actually names the correct parties
• Prove that the waiver of subrogation endorsement has been added

The certificate is a starting point, not proof of compliance. For the declarations page and actual endorsement copies, you need to request the underlying policy documents. This applies equally when reviewing your landlord’sinsurance — do not accept a certificate as proof that the landlord actually carries the coverages the lease requires.

Red Flags in Lease Insurance Language

The following provisions are red flags that should trigger a conversation with your broker and potentially your attorney before you sign.

• Unlimited or uncapped indemnification.The lease requires the tenant to indemnify, defend, and hold harmless the landlord for “any and all claims” arising from the tenant’s use of the premises — without limit, without exclusion for the landlord’s own negligence, and without a cap tied to available insurance. This can expose the tenant to liability far beyond what any insurance policy covers.
• One-way waivers of subrogation.The tenant waives subrogation rights against the landlord, but the landlord does not reciprocate. This means the landlord’s insurer can sue you for any loss you cause, but your insurer cannot sue the landlord for any loss the landlord causes. Always insist on mutual waivers.
• Building coverage responsibility without building ownership. The lease requires the tenant to insure the building structure even though the tenant does not own the building. This is common in NNN leases and creates a significant coverage gap because most commercial property policies written for tenants do not include building coverage.
• “Landlord may change requirements at any time.”Some leases include a provision allowing the landlord to increase insurance requirements during the lease term at the landlord’s sole discretion. This is a blank check. Negotiate a cap, a reasonableness standard, or a requirement that changes reflect actual risk changes.
• Requirement to carry coverage types that do not exist or are unavailable. Some leases require coverages that are not available in the commercial insurance market or that are prohibitively expensive. If you cannot obtain the required coverage, you are in perpetual breach of the lease.
• Tenant responsible for losses caused by other tenants. In multi-tenant buildings, some leases attempt to make each tenant responsible for losses caused by any other tenant. This is unreasonable and may not be insurable.
• No requirement for the landlord to carry insurance.If the lease is silent about the landlord’s insurance obligations, the landlord may carry no property insurance at all. If the building is destroyed, there may be no coverage to rebuild — and the tenant loses their premises with no remedy. See our landlord duty to disclose article for additional context.

What Is Negotiable and What Is Not

Lease insurance provisions are more negotiable than most tenants realize. Landlords often start with a template drafted by their attorney to maximize the landlord’s protection, and many tenants sign it without pushback. But most of the insurance provisions are negotiable within reasonable bounds.

Generally Negotiable

• Liability limits.If the lease requires $5 million and your business risk does not justify it, propose $2 million or $3 million. Support your position with your broker’s assessment of adequate limits for your business type and premises size.
• Indemnification scope.Negotiate to exclude the landlord’s own negligence from the tenant’s indemnification obligation. California Civil Code Section 1668 voids provisions that attempt to exempt a party from responsibility for their own fraud, willful injury, or violation of law.
• Waiver of subrogation direction. Insist on mutual waivers. If the landlord resists, they are asking you to assume a risk they are unwilling to assume themselves.
• Insurance requirement escalation. Negotiate a cap on how much the landlord can increase requirements, or tie increases to an objective standard like inflation or industry benchmarks.
• Notice and cure periods. If you inadvertently lapse on coverage, the lease should provide a reasonable cure period (typically 10 to 30 days) before the lapse constitutes a default. Without a cure period, a carrier billing error could trigger eviction.
• Deductible limitations. Some leases specify maximum deductibles. If the required deductible is lower than what your policy carries, you may need to adjust your policy or negotiate the lease provision.

Generally Non-Negotiable

• Requirement to carry CGL and property coverage. Every commercial landlord will require basic liability and property coverage. The limits are negotiable; the requirement itself is not.
• Additional insured status for the landlord. This is a nearly universal requirement. The scope may be negotiable, but the basic requirement to name the landlord is standard.
• Certificate of insurance delivery. You will need to provide certificates at lease execution and at each renewal. This is administrative, not substantive.
• Workers’ compensation. Required by law if you have employees. No negotiation needed or possible.

How to Review the Landlord’s Insurance

Most tenants focus exclusively on their own insurance obligations under the lease and never examine whether the landlord is actually carrying the coverage the lease promises. This is a critical oversight. If the landlord is supposed to insure the building and does not, you discover the gap only when the building is destroyed and there is no coverage to rebuild your premises.

• Request the landlord’s declarations page.A certificate of insurance tells you very little. Request the actual declarations page of the landlord’s property policy, which shows covered property, limits, deductibles, and named insureds.
• Verify the building is covered at adequate limits.Confirm that the landlord’s policy covers the building at replacement cost value, not actual cash value. If the building is underinsured, it may not be fully rebuilt after a loss.
• Check for coinsurance penalties.If the landlord’s policy has a coinsurance clause and the building is underinsured, the landlord will collect less than the full loss — and the shortfall may affect your premises.
• Confirm loss of rental income coverage. If the building is destroyed and the landlord has no rental income coverage, the landlord may have no financial incentive to rebuild. You lose your premises and your business.
• Include a lease provision requiring the landlord to maintain coverage. The lease should affirmatively require the landlord to carry specified coverages at specified limits throughout the lease term. A lease that merely states what the landlord “currently carries” does not obligate the landlord to maintain that coverage.

Matching Your Policy to Your Lease Obligations

Once you understand what the lease requires, you must verify that your insurance policy actually delivers it. This is not a theoretical exercise — it is a line-by-line comparison between the lease’s insurance exhibit and your policy’s declarations page, endorsements, and coverage forms.

• Coverage types.Does your policy include every coverage type the lease requires? CGL, property, business income, umbrella, auto, workers’ comp?
• Limits.Does every coverage meet or exceed the lease’s minimum limits? Check per-occurrence, aggregate, and any sublimits.
• Additional insured endorsement. Does your policy include an additional insured endorsement that names the correct parties with the correct scope? Does it provide primary and non-contributory coverage if the lease requires it?
• Waiver of subrogation endorsement. Is the waiver of subrogation endorsement actually on the policy? Does it name the correct parties?
• Tenant improvements and betterments. Does your policy cover your tenant improvements and betterments at replacement cost? Is the limit adequate to cover your full build-out?
• Building coverage (NNN leases). If the lease requires you to insure the building, does your policy actually include building coverage? Standard tenant policies typically do not. You may need a specific endorsement or a separate policy.
• Deductibles. Does the lease impose a maximum deductible? If so, does your policy comply?

Common Mistakes Tenants Make

After reviewing hundreds of commercial leases and the insurance programs behind them, the same mistakes appear repeatedly. Every one of them is preventable.

• Assuming the landlord has insurance. Unless the lease specifically requires it and you verify it, do not assume the landlord carries any coverage at all. Some landlords self-insure. Some let policies lapse. Some carry only liability with no property coverage.
• Not reading the insurance exhibit. The insurance provisions are typically buried in an exhibit or attachment at the back of the lease. Many tenants never read them. Many brokers never see them until after the lease is signed.
• Signing without broker review.Your insurance broker should review the lease’s insurance provisions before you sign. The broker can identify requirements that are impossible, prohibitively expensive, or incompatible with available coverage. If you sign first and ask questions later, you may already be in breach.
• Failing to update coverage after build-out. You sign the lease, build out the space, and never update your tenant improvements coverage to reflect the actual build-out cost. Three years later, a fire destroys $400,000 in improvements and your policy covers $100,000.
• Treating the certificate as the policy. The certificate of insurance is a summary document. It does not modify the policy, does not guarantee coverage will continue, and does not prove that all lease requirements are met. Rely on the actual policy documents, not the certificate.
• Ignoring the insurance provisions at renewal.The lease renews or extends. Your business has grown. Your build-out has expanded. Your insurance requirements may have changed. But nobody reviews the insurance provisions at renewal because “we already dealt with that.”
• Not insuring lease obligations as a whole.The lease creates financial obligations — rent, CAM charges, tax pass-throughs — that continue even if your business shuts down due to a covered loss. Business income coverage should account for these continuing lease obligations, not just lost revenue.

Section-by-Section Markup Guide for Lease Insurance Provisions

When you receive a lease draft with an insurance exhibit, use this markup guide to identify provisions that need negotiation, clarification, or revision. For each provision, the guide identifies the standard language, the risk it creates, and the recommended response.

Indemnification Clause

Standard language:“Tenant shall indemnify, defend, and hold harmless Landlord from and against any and all claims, damages, losses, costs, and expenses arising from Tenant’s use and occupancy of the Premises.”

Risk:As written, this could require the tenant to indemnify the landlord even for the landlord’s own negligence.

Markup:Add “except to the extent caused by the negligence or willful misconduct of Landlord, its agents, employees, or contractors.” This carves out the landlord’s own fault. Also consider adding: “Tenant’s indemnification obligations shall be limited to the extent of available insurance proceeds under the coverages required by this Lease.”

Insurance Limits Clause

Standard language:“Tenant shall maintain commercial general liability insurance with limits of not less than $5,000,000 per occurrence.”

Risk:The required limit may be disproportionate to the tenant’s actual risk exposure, making coverage unnecessarily expensive.

Markup:Propose limits that match the actual risk. For a small retail or office tenant, $1 million per occurrence with a $2 million aggregate — supplemented by a $1 million to $3 million umbrella if needed — is typically adequate. Support your position with your broker’s written assessment.

Waiver of Subrogation Clause

Standard language:“Tenant waives all rights of subrogation against Landlord.”

Risk:One-way waiver. The landlord’s insurer can still pursue the tenant.

Markup:Change to: “Each party waives all rights of subrogation against the other party to the extent of insurance proceeds received or receivable under the insurance policies required by this Lease.” This makes the waiver mutual.

Landlord’s Right to Change Requirements

Standard language:“Landlord may, from time to time, require Tenant to increase insurance limits or obtain additional coverages as Landlord deems reasonably necessary.”

Risk:“Reasonably necessary” is undefined and subjective. The landlord could require expensive additional coverages mid-lease.

Markup:Add objective standards: “Any changes must be consistent with insurance requirements imposed on comparable tenants in comparable properties in the same market. Landlord shall provide 90 days’ written notice and reasonable documentation supporting the change. In no event shall required limits increase by more than 25% during any five-year period.”

Default and Cure Provisions

Standard language:“Failure to maintain the required insurance shall constitute an immediate default under this Lease.”

Risk: A carrier billing error, a one-day lapse during renewal, or a delayed certificate could trigger a lease default with no opportunity to cure.

Markup:Add a cure period: “In the event of a lapse in required coverage, Tenant shall have 15 business days after written notice from Landlord to reinstate the required coverage before such lapse constitutes an Event of Default.”

When to Hire a Broker vs. an Attorney for Lease Review

Both insurance brokers and attorneys play important but distinct roles in reviewing lease insurance provisions. Understanding when to use each — or both — prevents gaps in your review process.

• Your insurance broker should review the insurance exhibit before you sign. The broker can confirm whether the required coverages are available, what they will cost, whether your current policy complies, and what endorsements need to be added. The broker can also identify requirements that are impossible or prohibitively expensive in the current market.
• An attorney should review the indemnification provisions, liability allocation, default provisions, and the interplay between the insurance provisions and the rest of the lease. Legal issues like unlimited indemnification, one-way waivers, and building coverage obligations are legal questions, not insurance questions.
• Use both when the lease involves high-value premises, unusual insurance requirements, NNN structures, or any provision you do not fully understand. The broker reviews the insurance mechanics; the attorney reviews the legal implications. Neither alone covers the full picture.

The Tenant’s Insurance Checklist

Use this checklist before signing any commercial lease. Each item should be confirmed by your broker, your attorney, or both.

• I have read the entire insurance exhibit and every referenced attachment
• My broker has reviewed the insurance provisions and confirmed that all required coverages are available and priced
• I know exactly which party insures the building shell, tenant improvements, contents, and common areas
• Liability limits are reasonable for my business type and premises size
• Indemnification is mutual — I do not indemnify the landlord for their own negligence
• Waivers of subrogation are mutual — both parties waive, not just me
• My policy includes the additional insured endorsement naming all required parties
• My policy includes the waiver of subrogation endorsement
• My policy provides primary and non-contributory coverage if the lease requires it
• My tenant improvements and betterments coverage reflects my actual build-out cost, not a placeholder number
• I have requested and reviewed the landlord’s declarations page or proof of insurance
• The lease requires the landlord to maintain specified coverages throughout the term
• There is a reasonable cure period for insurance lapses before a lease default is triggered
• Any escalation clauses for insurance requirements are capped or tied to objective standards
• My business income coverage accounts for continuing lease obligations (rent, CAM, taxes) during a shutdown
• I have calendared annual insurance compliance reviews tied to my policy renewal and lease anniversary