Back to Basics – Navigating Insurance Requirements in Commercial Property Lease Agreements 

• By: Nancy Germond
• June 24, 2025

Understanding insurance requirements in lease and purchase agreements is often complicated. From gross leases to absolute net leases, these varying terms directly influence insurance responsibilities as a leaseholder. If your clients are not careful, they could end up with insufficient insurance coverage given their lease language. Here is a breakdown of common commercial real estate (CRE) lease agreements and the required insurance obligations. Here is a tip I found helpful: If the lease title contains the word “net,” the lessee will be responsible for at least “one type of operating expense.”  

Common CRE Leases and Their Insurance Responsibilities 

Understanding these differences early can help you determine your insured’s need for proper insurance coverage. 

• Gross Lease 
  The lessee pays only rent. The building owner covers other expenses like taxes and insurance. 

• Single Net Lease 
  The lessee pays rent, utilities, and property taxes on the building. 

• Double Net Lease 
  Along with rent and utilities, the lessee also covers property taxes and building insurance. 

• Triple Net Lease (NNN) 
  The lessee pays for rent, utilities, property taxes, building insurance and most maintenance costs, including structural and shared spaces. 

• Absolute Lease The lessee becomes responsible for any major repairs such as structural damage repair or replacing a roof of HVAC system.  

Did you know that as many as 80% of commercial entities lease something annually, whether a building or a piece of construction equipment? According to Keith Wilts in this hyperlinked article on insuring commercial properties, “Leased property (buildings, improvements and betterments, equipment) can create significant exposures and coverage problems.” Frequently the lease requires the lessee to assume contractual responsibilities that fall far outside of their insurance protection.  

The relationship between the client and the agent may create an expectation that the agent should assist in analyzing the leased exposures and contractual coverages in the property and casualty forms. You must be careful to determine client expectations and if necessary, suggest when he or she should seek assistance from legal counsel on lease interpretation. 

This is great advice from Wilts, but also ensure you document your recommendation for the insured’s legal counsel’s involvement. 

The Risks of Triple Net Leases for Property Owners 

Trusting even a long-time tenant to properly insure a commercial building comes with significant risks. Circumstances change, carrier rates may degrade, or tenants may delay the cost of basic maintenance. However, triple net leases are widespread because many landlords prefer a hands-off approach, where tenants handle property expenses. But this can leave landlords exposed to coverage gaps when tenants do not have adequate insurance. 

Bill Wilson, author of “When Words Collide,” explains the issue, saying, “Many landlords want a ‘worry-free rental’ but may overlook critical insurance risks.”  

Brent Winans, Vice President of Clear Advantage Risk Management, adds, “Would you entrust a $5 million building to someone you know little about to buy your insurance? Standard insurance policies assume each party insures their property. But when tenants handle it, the policies do not always align, leading to potential gaps in coverage.” 

According to Winans, this is where a risk management consultant may help your insured. If you aren’t sure of the client’s insurance needs, suggest they talk to their attorney or hire a risk management consultant to review the lease and make recommendations.  

Insurance Challenges for Triple Net Lease Tenants 

For tenants, the biggest danger occurs when they sign a contract without having the proper insurance for the risks the terms of the lease require them to cover. Triple net leases are particularly risky if their coverage does not extend to the obligations outlined in the lease. Not only that, if you helped by reviewing the contract, you may face an E&O exposure. 

For example, if the tenant’s lease makes them responsible for property improvements, your insured could get stuck with repair bills insurance will not cover, for example repaving a potholed parking lot. That is a maintenance issue. If you advise on anything outside the insurance requirements in the least, you could open yourself up to a claim.  

Other examples of uninsured losses include specialized equipment like walk-in freezers, steam boilers, or security systems. Failing to account for these risks can lead to significant unexpected expenses. 

Recommendations You Can Safely Make to Protect Your Client and Yourself 

Taking preventative measures is essential to avoid costly surprises. Here’s how you can help your clients protect themselves from uncovered losses.  

• Recommend Your Client Hires a Competent Attorney 
• Recommend they have a real estate attorney review lease agreements before they sign. They can identify risky clauses and negotiate better terms to reduce their liabilities or at least inform them of issues they could face during their tenancy. 

• Do not Go Out on a Limb for Your Clients 
• You can help your client by reviewing the contract only for insurance requirements and recommending any available commercial property endorsements. These endorsements can cover specific building improvements or unscheduled property to safeguard against losses. Limbs break frequently and the landing can hurt.  

• Recommend Your Client Work with Their Attorney to Negotiate the Contract 
• Post-COVID-19, the commercial real estate market softened. Your client’s attorney may use this opportunity to renegotiate contracts with landlords to share responsibilities more equitably. With help, your insured can push back and negotiate overly stringent contract language. However, JP Morgan predicts that the commercial real estate market will improve, so if your client is looking for commercial space, they may want to act soon.  

• Recommend Experience and Reputation Over Price 
• Our insureds are notoriously price conscious. However, when they buy based on price, they often buy policies with significant coverage gaps.  

Helpful Search Terms in Leases 

Rather than reviewing a paper document, work only on a PDF or Word version of the contract. Then search these words in the contract, according to Noelle McCall, a principal at Contract Risk Academy in South Carolina.  

• Liability 
• Insurance
• Indemni, which will find “indemnification,” indemnify” and “indemnity”
• Insurance
• Sole negligence
• Risk of loss (for damage to the building)

Final Thoughts 

Whether you are representing a landlord or a tenant, understanding the insurance provisions in their lease agreements is critical to provide adequate coverage. Landlords must safeguard their investments by verifying tenants’ insurance coverage and consider any gaps in coverage in their policy. Agents must be sure they do not venture into areas the client’s legal counsel should handle. 

Before your clients sign that lease, they should seek expert advice to ensure they are not accepting more liabilities in the lease agreement than they want to handle/insure. Understanding the lease terms allows you as their agent to procure the proper coverage.  

Big I Members: Here are a few Virtual University insurance articles that can help you learn more about leasing agreements.