Require Tenant to Get Environmental Insurance

Require Tenant to Get Environmental Insurance

A big part of successfully running a shopping center is ensuring the safety of tenants, their employees, your employees, and customers. With security cameras or a security guard and alarms, you might think that you have the safety aspect of your operations locked down. But here’s something that could be overlooked and that can come back to burn you, figuratively and literally: inadequate or no insurance for tenants whose businesses create waste that’s dangerous, either in the short or long term. And if you haven’t thought of this, your leases might not include provisions that use insurance as the stopgap measure that can leave you liability free and put the onus on the tenant for whatever risks it’s opening you up to.

A solution to this is requiring tenants that use or generate hazardous materials to get specific insurance called “environmental insurance.” The entire point of environmental insurance is to protect you if the tenant contaminates your building or center. But it’s not enough to ask the tenant to get this insurance. Make sure to negotiate a lease clause that ensures that the tenant’s environmental insurance policy is adequate in case of an emergency.

This can be done in many cases by requiring the tenant to get a “pollution legal liability” (PLL) insurance policy. Ask your attorney if a PLL policy alone will protect you or if there is another insurance option needed. And remember to make the tenant responsible for paying all costs related to getting the PLL insurance policy and keeping it in effect. This should include:

  • The cost of premiums and deductibles;
  • Providing the insurer with any required additional information resulting from environmental incidents; and
  • Follow-up testing that the tenant must perform during the lease to continue its insurance coverage.

Without this lease requirement, the tenant may try to claim that you’re responsible for paying some or all of these costs.

For nine more safeguards to include in your environmental insurance clause, and Model Language that incorporates those protections, see “Negotiate 11 Safeguards in Insurance Clause for 'Hazardous' Materials Tenant,” available to subscribers here.