Insurance and Risk Management

Commercial investment properties require a premium insurance policy to cover all types of risks from vandalism to fires to hurricane storm damage. This extremely important cost to the property is recorded as an operating expense and is entered into the property management’s monthly statement to the owner. Very often, an institutional owner will cover all of their properties under a blanket policy and a property manager can have a difficult time determining the individual cost of coverage of a specific property for the purpose of the operating statement. This is the point when it’s prudent that the property manager be knowledgeable and begins his/her inquiry by asking the following question, what risks exist?

First, it’s important to determine who the insured is before any questions can be answered. Is the entity of ownership an individual? Are they a partnership, a real estate investment trust or corporation holding legal title? This information needs to clearly defined and set forth.

In the case of a general partnership, each of the partners should be named as an insured. If the deed holder is a limited partnership, be sure the general partners are listed individually as the names of the insured in the policy. If the ownership is in the form of a corporation, include the exact name of the corporation shown on the deed of record. While co-ops and condominiums generally fall into one of the ownership entities aforementioned, be sure that the board of directors (and/or board of managers) charged with the responsibilities for management of common areas are protected and named additionally as insured persons in the insurance policies.

Whenever the responsibilities of management are transferred to someone other than the property’s ownership, there is a potential liability to the individual, partnership or corporation that accepts that responsibility. Those parties should be named as individuals in the insurance policy and this can usually be accomplished at no additional premium to ownership. Many policies have a statement in them that reads “anyone acting in the capacity of rental agent or manager”. However, even if such a statement is printed in the policy – it’s wise to have an endorsement specifically naming the responsible party. For example, it’s smart to include the line, “The ABC Company, managing agent, is hereby named an additional insured party.”

The most obvious risk is the potential loss from fire or injury to persons on their property. However, there may be other risks which need to be covered by insurance. There is no substitute for making a thorough physical inspection of the property. In any high rise building the property manager should begin with an inspection of the roof and interior of the building. Usually there are at least two stairwells from the top to the lower levels. Walk down the building using alternate stairwells, thus he or she can inspect each public corridor. Upon reaching the ground level, they will check the lobby, shops if any, all public areas and all entrances and exists to the structure. While this walk-through inspection should not be treated lightly, a more complete and in-depth survey should be made of all mechanical equipment. Every property manager should know the working parts of a building.

Why such an intense type of physical inspection, you may ask. The property manager is looking for any potential hazard or risks that would subject the property management firm or the property owners to a liability suit. The property manager will also inspect equipment which would be extremely expensive to replace or repair such as elevators, central air-conditioning equipment or security alarm and surveillance equipment to name only a few.

The same thoroughness should be exerted in inspecting a mid-rise, an office building, a shopping center or any commercial structure. A building with a single or multi-level garage should also be carefully inspected. Curbing, aprons, over-changing shrubbery, pot holes and sunken areas are examples of risks that may exist in parking lots, particularly in shopping centers.

This type of survey or inspection is of little value unless risks and potential equipment malfunctions are listed and corrections made where possible. As a result, savings will generally accrue through lower insurance rates.

Reset password

Enter your email address and we will send you a link to change your password.

Get started with your account

to save your favourite homes and more

Sign up with email

Get started with your account

to save your favourite homes and more

By clicking the «SIGN UP» button you agree to the Terms of Use and Privacy Policy
Powered by Estatik
Scroll to Top