insurance – Page 3 – Retail Real Estate Law Ruminations

Special Tip: You Don’t Want To Call For Broad Form Property Insurance

August 14, 2016 By Ira Meislik Leave a Comment

Last week, we left off just before the “good stuff.” We wrote that the most commonly encountered commercial property insurance policy, the one promulgated by Insurance Services Office, Inc. (ISO), was a four-part insuring agreement. One of those parts, the “coverage part,” is where you find out what is covered. That’s today’s topic. If you want to start with last week’s posting, click: HERE. Otherwise, here we go.

Insurance buyers can choose from among three levels of coverage, each beginning with these four words: “Covered Causes of Loss. The three available (ISO) forms are: Special, Broad, and Basic. Here is a spoiler: “The butler did it.” For today’s purposes, that means: “Go for the Causes of Loss – Special Form coverage part.”

“Broad Form” coverage sure sounds enticing. Well, if that’s how it seems to you, pay attention to this. Basic Form coverage covers 11 specific perils. Ruminations won’t waste your time listing them. Under such coverage, if your damage wasn’t caused by one of those 11 perils, you might as well not have had insurance. [Read more…]

So, Wise Guy, What Replaced “All Risk” Insurance?

August 7, 2016 By Ira Meislik 1 Comment

Ruminations looked to see how many times it had written that there hasn’t, since 1983, been something called “All Risk” insurance, the year the insurance industry “deep-sixed” that policy form (and name). Well, to put it bluntly, it was a lot. Yet, an overwhelming number of agreements coming across our desk “asking” for insurance still call for this long-dead (33 years dead) policy form. What our searching revealed, however, was that we never ever completely described its replacement. Today, we will do so, though “completely” would be an overstatement.

First, let’s get some background out of the way. As in the past, we are writing based, in large part, on the terminology and forms used and promulgated by Insurance Services Office, Inc. (“ISO”), a company that creates those things for most insurance companies. Its forms probably account for 95% of the ones you’ll ever see. Yes, there are other “forms” and insurers will add or substitute their own, but with ISO dominating the field, time spent on the subject is best spent focusing on the ISO forms. [Read more…]

Filed Under: Uncategorized Tagged With: Agreements, Contracts, Drafting, insurance, Landlords, leases, lenders, mortgages, retail real estate law, Tenants

How Insured Is An “Additional Insured”?

July 31, 2016 By Ira Meislik Leave a Comment

Why carry your own insurance when you can have the tenant (or landlord) name you as an additional insured under its own commercial general liability policy? After all, isn’t it obvious that if the insured (tenant or landlord) has good coverage, adding your own name in “addition” to that of the policy holder must mean that you have the same coverage as that policy holder. NOT!

At this point, we’ll repeat a frequent Ruminations refrain: “Carry your own insurance.” Here are more reasons why that remains good, solid advice.

[Today, as we commonly do, our examples derive from the most common set of insurance forms, those promulgated by the Insurance Services Office, Inc., a company that provides a whole bunch of services to that industry. For short, it is known as ISO and its forms are known as “ISO” forms.] [Read more…]

Filed Under: Financing Properties, Retail Leases, Retail Real Estate Law Tagged With: additional insured, Agreements, Contracts, Drafting, insurance, Landlords, leases, lenders, mortgages, negotiation, retail real estate law, Tenants

It Isn’t A Quiz Show Choice, “Ordinance Or Law.” So, What Is It?

May 1, 2016 By Ira Meislik 1 Comment

Riding on our success with an insurance discussion last week about the meaning and implications of having someone’s insurance coverage be “primary and noncontributory,” we thought we’d risk a similar topic this week. [To see what Ruminations said about “primary and noncontributory,” click: HERE.]

There are two pretty common land use and construction approval concepts across the country. If a building is destroyed beyond a certain degree (by fire or otherwise), its reconstruction has to comply with current law. “Grandparenting” (f/k/a “grandfathering”) doesn’t allow you to put it back the way it was. Generally, when it comes to construction codes, new buildings and major reconstructions need to meet most new code requirements. For example, if the “old” building had 1/2 inch wallboard (which was lawful when built) and the current code requires 3/4 inch wallboard, 3/4 inch is the answer to your question.

As to compliance with land use requirements, the most common “threshold” is 50% destruction. In some jurisdictions, that is 50% of value; in some that’s 50% of floor area; in some it might be 50% of bulk volume. The “threshold” is jurisdiction specific. Look it up. Regardless of the threshold, if the damage exceeds that level, you don’t have the right to put the building as it was, if it didn’t conform to the land use requirements on the day the damage took place. So, if the building was a prior nonconforming use because it was a three-story building now in a two-story zone, you don’t have the right to rebuild three stories. You need to get a variance. The same goes for setback violations, and so forth. And, yes, sometimes you can’t get the variance and the building can’t be reconstructed. [Read more…]

Here Is A Primer On “Primary And Noncontributory”

April 24, 2016 By Ira Meislik 5 Comments

Many of us who “do” agreements, such as a lease, were seemingly trained by Admiral David Glasgow Farragut, “remembered for his order at the Battle of Mobile Bay (in which he was victorious) usually paraphrased as ‘Damn the torpedoes, full speed ahead’ in U.S. Navy tradition.” [Thank you, Wikipedia.] How so? Well, we all like to jump in there and use terms of art, not our own, as if we understand those terms. Like, what? Try, insurance terms.

This will be a primer on the meaning or concept behind the insurance term: “primary and noncontributory.” [Yes, for those who are wondering, “primer” and “primary” both share the common Latin root: Prīmārius, meaning “of first rank.”] That’s helpful information because, as should become clear, the essence of what is behind “primary and noncontributory” is priority of payment, which insurance carrier pays first. Not “pays all,” but “pays first.” Yes, the “primary” in “primary and noncontributory” doesn’t mean “the most important”; it means it, the “primary” carrier, pays first. With that start, Ruminations is going to “back into” the bottom line” by explaining some related concepts. [By the way, “short’ was for last week.] [Read more…]

Tenants Don’t Need To Carry Insurance (Maybe)

November 1, 2015 By Ira Meislik 2 Comments

We’ve shared many of these insurance thoughts before, but not all in the same place. Today, we’ll be staying out of the “weeds,” not because “there be snakes,” but we don’t want “detail” to drown out some basic messages.

Insurance is a credit enhancement. If you have a lot of money (think Exxon, Bill Gates, etc.), you can cover your own obligations, pay your own liabilities. You don’t need a sugar daddy back-up. And no one should require you to have one. A landlord who does an absolute-net lease of an entire $100 million building to Exxon, doesn’t need Exxon to buy property insurance from insurance companies. Exxon can buy the insurance companies. It can handle the loss. Its net worth is about $500 Billion. It has more than $50 billion of cash on hand. Chubb Insurance has equity of about $16 Billion. We would have said “only,” but that’s “only” when compared to Exxon. [Read more…]

Filed Under: Buying and Selling Properties, Financing Properties, Retail Leases, Retail Real Estate Law Tagged With: Agreements, Contracts, Drafting, indemnification, insurance, Landlords, leasehold improvements, leases, lenders, mortgages, negotiation, Operating Expenses, retail real estate law, shopping centers, Tenants

What’s In A Name? Gross? Net? Does It Make A Difference?

July 19, 2015 By Ira Meislik 2 Comments

Other than giving a general sense of the way the lease deals with variable costs of operating a rental property, the labels, “gross lease” and “net lease” give no usable information. A good rule when it comes to preparing a lease or when reviewing a lease is to look at each obligation and ask two questions: “Who does it? Who pays for it?” In the truest of “net” leases, the tenant does both. You’ll see that most often for a single tenant property where the leased premises include all of the land as well as the building. That can come about in a number of ways, most often when the tenant developed the property and then sold it to an investor (a sale-leaseback). It is also common when a developer does a build-to-suit project for the tenant. Less often, but not rare, is where an existing single-tenant property is leased. In each of those cases, the overwhelming “rule” is that the tenant will do all of the work at its own expense. A very common, though limited exception, is when it comes to the building’s structure and, less often, the building’s roof. A “smart” exception would be that the landlord maintains the property insurance, though the tenant pays that cost. Such a lease is rightly called “triple net,” “net” or, as Ruminations prefers, ‘absolute net.” [Read more…]

Filed Under: Retail Leases, Retail Real Estate Law Tagged With: Agreements, CAM Costs, Contracts, Drafting, insurance, Landlords, leases, negotiation, Rent, retail real estate law, shopping centers, Tenants

I Paid For Replacement Cost Insurance Coverage, Where Is the Rest Of My Money?

May 31, 2015 By Ira Meislik Leave a Comment

We were Ruminating about the reasons some people, instead of asking for “replacement cost” insurance coverage, ask for “full replacement cost” or “100% replacement cost” coverage. That made us think about the difference between a quart of milk and a full quart of milk. We don’t have any better answer than anyone else, so that was a dead-end for a Ruminations blog posting. Fortunately, those thoughts led us to today’s topic. So, our Ruminating was not for naught.

What is “replacement cost” coverage and what other kinds of property insurance coverage levels are there? We’ll start with the second question first. There are two basic ways a loss to insured property can be valued: (1) based on its replacement cost; and (2) based on its actual cash value (ACV). [Read more…]