Businesses large or small who rent space at a very favorable per square foot price may purchase coverage for the cancellation of that favorable lease contract.
This is commonly called leasehold interest coverage. Cancellation of the lease must be caused by the direct physical loss or damage to the real property being leased. For example, a business has a 10-year lease on a 5,000-square-foot building with an annual rate of $15 per square foot and the property is destroyed after five years. The owner decides not to rebuild and terminates the lease. The business must find a new location. The best lease that can be obtained is now $20 per square foot, a $25,000 per year increase over the previous contract.
Since there was five years remaining on the previous lease, the total increase would equal $125,000.
Leasehold interest insurance would pay the business $125,000 less any deductibles.
Additional insurance coverage under this policy include any prepaid rent. Prepaid rent is sometimes paid because of favorable discounts offered by the landlord.
Rent bonuses paid to a landlord are also covered under this policy. Rent bonuses are paid to landlords to keep other potential renters from grabbing up a favorable lease.
Also insured is the use Interest of improvements, such as fixtures, alterations, walls, counter tops and improved offices which were installed and paid for by the tenant.
This type of coverage must be carefully structured by your licensed agent or risk manager to be accurate before added to your business policy. Some business owners’ policies include this coverage.
Robert “Bob” Fowinkle, the president of Moore, Fowinkle, Schroer Agency in Bradenton, can be reached at (941) 755-2628.