Certificate of insurance for a commercial lease in California: what the landlord is actually asking for

Somewhere near the back of a commercial lease is an insurance article, and before you get the keys the landlord wants a certificate proving you have met it. The article is usually two or three pages of limits, endorsements and deadlines, and the certificate cannot be issued honestly until the policy actually contains what the article asks for. This page explains what a California lease typically requires, what the landlord’s “additional insured” demand really means, and what to check on the certificate before you sign.

This page is about California only. Lease forms, insurance forms and the law on waivers all vary by state. Everything below comes from the lease forms in common use in California, the ISO insurance forms filed here, and California statute and case law.

What does a commercial lease usually ask a tenant to carry?

The list is longer than most tenants expect, and it is not the same on every form. The lease forms published by AIR CRE and the California Association of Realtors are the ones most California commercial leases use. AIR forms are the ones we see most often, but we see plenty of others. The exhibit in front of you controls, so read it rather than assuming it matches the one you signed last time.

As an example of what a common form asks for, the AIR forms typically require the tenant to carry:

• Commercial general liability on an occurrence basis, at the per-occurrence and aggregate limits the lease states, with the landlord added as an additional insured by an endorsement at least as broad as the ISO managers or lessors of premises form, and endorsed primary and non-contributory.
• Property insurance at full replacement cost on the tenant’s personal property, trade fixtures, and the alterations and installations the tenant paid for, sometimes with a cap on the deductible.
• Business income cover for the tenant’s own loss of income and extra expense.
• Workers’ compensation with a waiver of subrogation in the landlord’s favour.

The landlord carries the building and its own rental-value insurance, and in a net lease the premium comes back to the tenant as an operating expense. Other forms add commercial auto, an umbrella above the liability limits, or plate glass for a storefront. Plate glass is one to check rather than assume: on many property policies and business owners policies it has to be added specifically by endorsement. A lease that requires it will not tell you whether your policy already has it.

What does “landlord as additional insured” actually require?

An endorsement on your liability policy, not a line on the certificate. The ISO form written for this is CG 20 11, Additional Insured – Managers Or Lessors Of Premises. The current edition is dated 12 19; the 04 13 edition is still widely issued, and carriers file their own versions. On a business owners policy the matching form is BP 04 02.

Three things about that endorsement matter to a tenant. It covers the landlord only for liability arising out of the part of the premises leased to you, which is why the schedule has to describe the premises correctly. It ends when you cease to be a tenant, which in practice means when you leave, not when the lease term expires, so a holdover is still covered. And it excludes structural alterations, new construction and demolition done by or for the landlord, because those are the landlord’s own operations, not yours. The 12 19 edition also narrowed the grant to liability caused, in whole or in part, by the tenant, so a landlord’s sole negligence is no longer picked up.

If the space is a kiosk, a counter in someone else’s store or a hotel gift shop, it may be a licence rather than a lease. The right form is then usually CG 20 26, Additional Insured – Designated Person Or Organization. If the lease also names the landlord’s property manager and lender, they need to be on the endorsement too. What an additional insured is, and why a certificate cannot create one, is covered in certificate of insurance in California.

What does primary and non-contributory mean?

That your policy pays first for a covered claim against the landlord, and the landlord’s own policy does not share the loss. On an ISO policy it is endorsement CG 20 01, Primary And Noncontributory – Other Insurance Condition. Most carriers will add it when a written lease requires it; some limit it to the parties named on the additional insured endorsement. Ask for it at the same time as the additional insured endorsement, because the certificate has a box for it and the box means nothing without the form behind it.

What is the mutual waiver of subrogation, and why is it worth having?

It is the clause under which each side agrees that its own property insurer will pay for damage to its own property and will not then sue the other side to recover. Without it, if a fire that starts in your space damages the building, the landlord’s insurer pays the landlord and can then pursue you for what it paid. California courts have enforced contractual waivers of subrogation, and where a lease did not contain one, a landlord’s insurer has been allowed to pursue a negligent tenant.

The clause only works if each side’s carrier has actually waived the right. On a general liability policy that is endorsement CG 24 04, Waiver Of Transfer Of Rights Of Recovery Against Others To Us. On property forms the waiver is permitted when it is agreed in writing before the loss, which the lease supplies. On California workers’ compensation it is endorsement WC 04 03 06, which carries a premium charge. Ask for the endorsements, and ask that the landlord’s policy carries the matching waiver, because the clause is mutual and the protection runs both ways.

Who insures the build-out?

Usually you, for the parts you paid for. Under the ISO commercial property form, improvements and betterments are the fixtures, alterations, installations and additions a tenant makes, at its own expense, to a building it occupies but does not own and cannot legally remove. They sit inside the tenant’s business personal property limit. The landlord’s building policy covers the building; it does not pay to rebuild your reception desk, your walk-in cooler or your partition walls unless the lease says the landlord owns them and insures them.

The valuation rules are particular. If you repair promptly, the improvements are paid at actual cash value, or replacement cost if you carry that option. If someone else repairs them, nothing is paid. If nobody repairs them, the policy pays the unamortised share of what you spent, spread over the remaining lease term. Which of those applies is worth knowing before you spend six figures on a fit-out. The commercial property page covers the rest of the property side.

Certificate holder, additional insured or loss payee: which does the landlord get?

Often all three, and they are different things.

• Certificate holder is the address the certificate is sent to. It carries no rights.
• Additional insured is a party given rights under your liability policy by endorsement, as above.
• Loss payee is a party entitled to be paid, as its interest appears, from a property claim. On an ISO property policy it is added by CP 12 18, Loss Payable Provisions, which has separate clauses for a plain loss payee, a lender, a party under a contract of sale, and a building owner. A landlord who owns the improvements may ask to be a loss payee on your property cover; a landlord who wants its rent protected if you cannot trade after a fire is asking about your business income cover, which has its own landlord endorsement.

When a lease exhibit asks for the landlord to be “named” on the policy without saying how, the answer is to ask which of the three it means. Naming the wrong one is the most common reason a certificate comes back rejected.

Will the landlord be told if the policy cancels?

Only if the policy says so. California’s cancellation rules send notice to the first named insured and the producer of record. The certificate itself gives the holder no right to notice; that is the point of Insurance Code section 384, which requires every certificate to say it does not amend the policy. Leases still ask for thirty days’ notice to the landlord, and the AIR forms ask for it too. What satisfies that is a notice-to-others endorsement on the policy, which some carriers offer and some do not, so raise it before you sign rather than when the certificate is due.

The AIR forms also ask for renewal evidence before the policy expires, and some lease forms attach a financial consequence to a month without evidence of insurance on file. Landlords who depend on the coverage ask for a fresh certificate at each renewal rather than filing one away.

What should you check before you sign the lease?

• Limits. Compare the exhibit’s per-occurrence and aggregate figures with your declarations page, including any umbrella the exhibit counts.
• The entity. The tenant named in the lease and the named insured on the policy should be the same legal entity, not a d/b/a on one and a corporation on the other.
• The endorsements by name. Additional insured (and which form), primary and non-contributory, waiver of subrogation. If the exhibit names a form, ask us whether your carrier issues it.
• Property valuation and deductible. Replacement cost on your improvements, and a deductible under whatever cap the exhibit sets.
• Timing. Certificates due before possession, renewal evidence due before expiry, and what happens if either is late.
• Who pays for the landlord’s insurance. In a net lease the landlord’s premium is your operating expense; the exhibit or the operating-expense clause will say so.

If the exhibit asks for something the policy cannot provide, the answer is to change the policy or to negotiate the clause, never a certificate that implies coverage that does not exist.

Are you the landlord?

Then the certificates you receive are what you are relying on, and the checks are the same in reverse. Look at the tenant’s exact entity, the limits, the endorsements behind the boxes, the dates, and the mutual waiver on both policies. Many landlords and property managers stop once they have a certificate and an additional insured endorsement. The lease usually entitles them to more than that: a waiver of subrogation and primary and non-contributory wording are endorsements too. If the tenant’s policy has not been endorsed for them, the protection the lease negotiated is not there. Tracking tenant certificates and chasing renewals is your property manager’s job. We are glad to review the certificates you receive against the lease so you know which of those protections are really in place, and the lessor’s risk only page covers your own policy.

How do you get the certificate for your lease from us?

Most certificates we issue ourselves from the policy. A few carriers issue their own, and when that applies we tell you and request it for you. Either way, the endorsements have to be on the policy before the certificate can show them.

Already a client of ours?

Use the certificate request form and attach the lease’s insurance exhibit, not just the landlord’s name and address. If the policy already meets it, the certificate follows. If it does not, we tell you where the gap is and ask how you want to proceed.

Not a client yet?

Start with a business insurance quote and send the exhibit with it, so the policy is built to the lease from the start. Some risks we can write directly and quickly. Others go to underwriting for approval, or need a wholesale market, and those take longer. Either way you know before you sign.

This is general information about a common California lease requirement and is not legal advice. Whether a particular clause is enforceable, or worth negotiating, is a question for your attorney.

Sources

• California Insurance Code section 384
• AIR CRE, list of contracts; the insurance articles of its standard lease forms (described in general terms, not reproduced); California Lawyers Association on the AIR CRE and CAR forms
• ISO forms CG 20 11, CG 20 26, CG 20 01, CG 24 04, BP 04 02, CP 00 10 and CP 12 18 as filed; form titles cited, no form reproduced; IRMI commentary on the landlord as an insured and on tenants’ improvements and betterments
• Lloyd’s Underwriters v. Craig & Rush, Inc. (1994) 26 Cal.App.4th 1194; Fire Insurance Exchange v. Hammond (2000) 83 Cal.App.4th 313

Disclaimer

This article is provided by Schneiderman Insurance Agency for general informational purposes only. It is not legal, tax, financial, claims, or coverage advice. We are licensed insurance professionals, not attorneys, accountants, or financial advisors, and nothing here should be relied on as a substitute for advice from a qualified professional in those fields. This content is general in nature and is not a review of, or a recommendation for, any individual reader’s specific insurance needs, policies, or circumstances. Insurance coverage depends entirely on the specific terms, conditions, endorsements, exclusions, limits, underwriting eligibility, carrier, and facts of each situation, and the actual policy language always controls. We do not guarantee any coverage, pricing, eligibility, underwriting approval, or claim outcome. Reading this article does not create an agent-client relationship. To understand how these issues apply to your situation, please review your own policy and speak with a licensed insurance professional, and consult legal, tax, or financial advisors where appropriate.