Lease Audit Information
TOPIC OF THE WEEK:
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.
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.
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
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
*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!