Lessor's Risk Only (LRO) Insurance
for Real Estate Professionals

Lessor's Risk Only Insurance (aka LRO, Lessor's Risk, or Landlord Insurance) is a type of commercial insurance designed for those who own and lease building space to individuals and businesses. It can address the building owner's lawsuit expenses if a lessee or customer of the lessee sustains bodily injury or property damage while on the owner's property and sues over it.

In other words, if you're a commercial landlord, you probably want this coverage to protect your assets and address the unique risks that come with maintaining tenants. Let's review what we mean when we talk about "lessors" and how the Lessor's Risk Only policy works.

What Is a Lessor and Why Do They Have Risk?

What Is a Lessor and Why Do They Have Risk?

In a Lessor's Risk Only Insurance policy, a lessor may be any building owner who leases out at least part of their building to a tenant or lessee. A lessor can be liable if a lessee, lessee's employee, or lessee's customer suffers…

  • Bodily injuries while on the building owner's property.
  • Property damage while on the property.

For example, imagine you rent out space to a retail store in your building. While exiting the store, a customer slips on a patch of ice just outside the door and is seriously injured. Is the store liable for their medical costs or are you, the building owner?

It may depend on your contract with the store owner, but Lessor's Risk Insurance can help pay for legal expenses if the customer or the store owner sue you for damages.

Lessor's Risk Insurance can also address property damage costs, such as repairing vandalism and replacing stolen property. For instance, if the retail store in the example above is vandalized one night, the store owner may blame you for not protecting the building or providing adequate security. They may allege you're responsible for paying the repair and cleanup costs. Your LRO policy may help cover this type of claim.

Are You Eligible for Lessor's Risk Insurance?

Are You Eligible for Lessor's Risk Insurance?

Typically, Lessor's Risk Insurance…

  • Is available to building owners who lease their entire building.
  • Is sometimes available to those who occupy less than 75 percent of their building and lease out the remainder.
  • May be available for apartment building owners, but generally is meant for those who lease to commercial tenants, such as warehouses, retailers, and commercial offices.

Also worth noting: you may be required to carry Lessor's Risk Insurance in certain municipalities, so make sure to check out your local laws concerning landlord coverage.

How Lessor's Risk Insurance Works

How Lessor's Risk Insurance Works

Lessor's Risk Insurance acts similar to General Liability Insurance in the sense that it addresses claims arising from third-party property damage and bodily injury. However, Lessor's Risk…

  • Applies to liability claims brought by lessees or customers of lessees.
  • Usually doesn't cover liability claims stemming from other third parties.

So say, for example, a handyman you hired is injured while doing maintenance on your building and makes a claim against you. You'd look to your General Liability policy to address the claim, not your LRO policy.

If you rent out apartments in your building, you should also know that a Lessor's Risk policy typically doesn't cover theft or damage to tenants' personal possessions. Your tenants are responsible for these items and should carry renter's insurance to protect them.

As a prerequisite for Lessor's Risk Insurance, you may need to require your tenants to carry their own insurance policies. When your tenants have their own General Liability and Property Insurance policies, you get an extra layer of risk protection. For example, when a tenant's visitor is hurt in your tenant's space, they may simply sue the tenant and not you to recover damages.

Of course, each insurance provider has different requirements for LRO coverage, so be sure to ask your insurance agent about your obligations.

To sum it all up: Lessor's Risk Insurance is an important risk management tool for landlords and can address some lessees' liability claims. Know your coverage details and ask your agent if you need clarification about your policy. With adequate coverage, you may keep costly claims from bankrupting you and forcing you to sell your assets, including the building you lease.

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