Waiver of Subrogation-Landlord and Tenant Lease Relationships
A waiver of subrogation is used in a commercial lease for the protection of one or both, the landlord and the tenant, to avoid duplicate payments made through the other party’s insurance policy, for the same negligible loss.
The Landlord maintains property insurance on the building. The Tenant maintains property insurance on the tenant’s business personal property. If the tenant pays a portion of the building premium to the landlord, and the tenant causes negligence to the building, the landlord’s insurance carrier can file suit against the tenant for building damages without the appropriate waiver of subrogation in place. The landlord has already collected premium from the tenant, as well as received payment from the landlord’s insurance policy, and can now recover the damages through subrogation of the tenant’s policy.
A waiver of subrogation will prevent the landlord’s insurance company from filing a claim and collecting against the tenant. The landlord and tenant should negotiate the terms of the waiver, and as to whether the waiver will be mutual, or only to benefit one party, and the extent of the coverage under the waivers.
Waivers can be negotiated against the two parties and must be a requested clause on the property insurance policy. Limits can be negotiated and stated on the waivers to the extent of the amount of insurance required to be carried on that property under the lease. Mutual waivers of subrogation can benefit and protect both the landlord and the tenant. Confirm with the insurance carriers if the waivers are allowed by each of the respective insurers and to be sure they are in compliance with the landlord and tenant lease.
Insurance requirements in your lease should be reviewed by your agent to be sure the coverage is in compliance and can be indicated on the certificate of insurance provided to both parties.
Roseanne Gedman, CPCU, CRM, CIC
Schechner Lifson Corporation