Understanding Improvements and Betterments: Commercial Property Insurance

What are improvements and betterments? Anything that the tenant does to the rented space that makes it functional for their business.

Often tenants are renting an empty building or portion of the building and need to make it functional for business by adding appropriate counters, new paint etc. Improvements and betterments of your space are crucial to any business’s success.

Here are the top five things you should know as a commercial property owner:

Make Improvements and Betterments a Clear Part of Your Lease:

Use specific language in order to avoid legal issues between you and your tenant. Of course, it is challenging to predict a situation that may arise, however, try to be as specific as possible to indicate the intention of both parties in order to avoid legal repercussions.

Is It a Trade Fixture or an Improvement/Betterment?

This is something that often can become messy when it comes to the end of a lease. Trade fixtures do not have a hard and fast definition, which can lead to misunderstandings. Typically, a fixture is added to the space by the tenant. An example of this could be a counter or display case, either built in or not. An improvement or betterment does not have a hard and fast definition either but is a little easier to negotiate. Typically, an improvement is anything done to the space that adds value.

Who Should Get What?

In order to avoid any issues, make it clear what the difference between trade fixtures and improvements/betterments in your lease. Usually, improvements and betterments belong to the landlord because they are improvements made upon the already existing space, even if they were done and paid for by the tenant. Trade fixtures on the other hand, are normally removed and belong to the tenant.

Improvements and Betterments Can Be Insured:

Your tenants’ betterments and improvements are likely covered if you have a “Personal Property of Others” portion in your policy. This is great news and a way to avoid any hassle or miscommunication between you and your tenant. This policy detail can often be found on the declarations page of your ISO.

Include These Costs In Your Limit of Building Coverage

Make sure the cost of the betterments and improvements done by your tenant are included in the limit of building coverage. If they are not included, the landlord may be required to pay a coinsurance penalty cost.

Have questions about your property insurance claim? Feel free to contact Stark Loss for more information about how a Public Adjuster can help.

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