Lessors Risk Only (LRO) Insurance/Property Owners Leasing To Tenants

Lessor’s risk only (LRO) insurance
Lessor’s risk only insurance is a policy that protects commercial property owners acting as landlords from tenant lawsuits over property damage and injuries.LRO Insurance also responds for property damages associated with tenants operations or caused by tenants and unsuspecting losses.

What does LRO insurance cover?
Lessor’s risk only (LRO) is meant to cover commercial property owners/landlords against certain risks and lawsuits from their tenants’ operations. If a tenant sues for a covered loss, your LRO policy is designed to respond and cover your legal fees, as well as tenant reimbursement for property loss or injuries.

Below is a list of liability insurance coverages LRO or also known as landlord insurance can respond for when sued from tenants:

Slip and fall claims or bodily injuries due to negligenceTheft and vandalism
Weather damage, varies from each insurance carrier (wind, hail, snow, and ice)
Fire and smoke damage
Water-related damages (burst pipes / backups)

LRO insurance may also include additional coverages as add-ons (endorsements) to your policy (e.g., pollution damage).

Who needs lessor’s risk only insurance?
Any commercial property owner should consider this insurance coverage. From small business owners to multiple property owners, as even one lawsuit could have a significant impact on your bottom line. Lenders typically require this insurance coverage for any loans involving commercial real estate.

The types of properties covered by lessor’s risk include apartment buildings, shopping centers, office space, and warehouses.

A lessor’s risk insurance policy is intended for landlords who occupy less than 25 percent of leasable space within a building, so it would not apply to a duplex or a two-flat dwelling where the landlord occupies half the building.

Why get LRO insurance if I have general liability insurance?
While LRO insurance and general liability insurance both offer financial protection from lawsuits, LRO covers risks involving a tenant’s use of the property.

General liability insurance is for common business risks like customer injury from negligence, damage to the property, and advertising injury.

If someone sued you for injuries after a slip and fall accident on your property, either your LRO insurance or your general liability policy would cover the lawsuit and damages:

Lessor’s risk covers injuries and lawsuits involving a tenant
General liability covers injuries and lawsuits involving the general public, such as a customer or a delivery person visiting one of your tenants.

What does lessor’s risk only insurance not cover?
It is not meant to cover any of the tenants business property such as inventory, equipment, computers, desks etc.. Nor does it cover professional liability claims against the tenants operations.

Will LRO insurance cover property damage?

If elected, LRO insurance can cover the building and replace it if a total loss as well as reimburse/replace rental business income if the tenants operations cease due a property claim and you stop receiving rents due to those property claims.

Building insurance offers protection for covered loss events and can prevent financial losses during a temporary shutdown for repairs in which tenants are not able to rent space in the property.

Criminal negligence by a landlord also isn’t covered, such as setting a fire to receive an insurance claim.

What underwriting requirements apply to lessor’s risk only insurance?
How much insurance premium you pay depends on various factors, below are some of the rating factors:

Building age, current condition, and any upgrades
Any existing hazards or previous losses and insurance claims
Occupancy tenant type/vacancy rate
Security and fire systems (video cameras, burglar alarm, smoke detectors, fire extinguishers, sprinklers, etc.)
An insurance company will also consider the type of building, as retail complexes are likely to see more foot traffic and face more risks than office space.

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