Good Neighbors Insuring Commercial Space in Your Building

Many co-op and condo buildings rent out their ground-floor space to commercial tenants—retail shops, restaurants, grocery stores, doctor’s offices, and so forth. While the commercial/residential arrangement has many benefits on both sides of the equation, it’s a complex relationship that can be tricky to navigate, depending on the kind of building, the neighborhood, the type of commercial tenant, and a whole host of other variables. For instance, what kind of insurance does the commercial tenant need? What if their insurance lapses and damage occurs to the building? And, for that matter, what kinds of businesses make the best tenants?

Hello, Neighbor

If the commercial lease in your building is up and the tenant is leaving or renewing, or if your building is new and has commercial space awaiting tenants, Before renting out that vacant ground floor space, it’s best to examine the risks some types of commercial tenants might pose. Moira T. Imperial J.D., vice president of Accordia Inc., an insurance broker based in New York, says, “If you have a commercial occupancy, there are some commercial occupancies—such as restaurants, for example—that tend to increase premiums, because they pose the issue of cooking exposure and fumes. Businesses that use flammable materials and chemicals—such as dry cleaners, auto body shops and janitorial suppliers can increase your premiums as well.”

“The best business you could have as a commercial tenant would probably be some kind of professional offices,” says Jon Lipton, managing director of ARM of New York Inc., an insurance brokerage based in Manhattan. “With doctors, dentists, or the medical professions, you don’t have any cooking exposure or any other kinds of exposure.”

Lipton says the key issue for boards is to ensure that the commercial tenant has their own insurance and that they would indemnify the building owner in the event of a claim.  “If they have a professional liability exposure, you want to make sure that they have malpractice insurance, professional liability or errors and omissions [coverage].”

 According to Imperial, “The rate for commercial occupancy is different than the rate for an apartment building.” Apartment buildings, she explains, are rated on a per-unit charge, whereas commercial occupancy is rated per-thousand-square-feet of space rented.

Or, says Steve Principe, president of the Principe Agency, located in East Meadow, “[Commercial coverage] can be based on sales, or on the number of employees the business has.” And a company’s insurance rating can change over time, Principe continues. “Ratings are always changing—both improvements and claims can change a commercial tenant’s insurance standing. If the property value increases, you have to let your insurer know. By the same token, if your policy is based on the number of people you employ, and you make new hires, you have to let your insurer know that as well—because you’ll be paying more.”

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