Tenant Carries Property Insurance in Build to Suit Lease*

Sample Clauses

Tenant Carries Property Insurance in Build to Suit Lease*

Jon F. ("Chip") Leyens, Jr.

The Steeg Law Firm, L.L.C.

201 St. Charles Avenue, Suite 3201

New Orleans, LA70170

Phone: (504) 582-1199

e-mail:

Explanatory Notes:

• The clauses below are excerpted from a landlord build to suit lease for a single tenant property
• The landlord’s standard operating practice (including on single tenant buildings) is to enter into so-called “triple net” leases pursuant to which the landlord carries property and other insurance, pays property taxes and maintains common areas and structural elements, with the costs being passed through to the tenant(s).
• In this instance, the tenant insisted that it carry the property insurance on the building through its company’s blanket policy, but for tax reasons, it was important for the landlord to be responsible for repairs in the event of a casualty.
• A few other items to note:
• Landlord named as additional insured (it’s not just a liability policy concept) and loss payee on the tenant’s property insurance
• Landlord needs to see a copy of the tenant’s policy, not just a certificate
• Landlord is obligated to restore after a casualty, but because the tenant is carrying the insurance, Landlord’s restoration obligations are limited to the amount of insurance proceeds it receives
• Similarly, Landlord is a loss payee for business interruption coverage under the tenant’s policy, so rent abates while Landlord is repairing the premises, but only to the extent of proceeds received from the tenant’s insurer

• Additional caveat: The language below was negotiated and agreed to by the parties, with input from their respective insurance consultants. It was not drafted as a form and I have not had other attorneys review it. There may be a number of items that could be tweaked or improved in the language (and I would welcome any comments, suggestions, etc.)

Sample Clauses

10.02Property Insurance. At all times during the Lease Term, Tenant shall procure and maintain, at its sole expense, special form (“all risk”) property insurance, in an amount not less than one hundred percent (100%) of the replacement cost, covering the Premises (including all leasehold improvements), the contents thereof, and the Building in which the Premises are located (collectively, the “Property Insurance”). The Property Insurance shall contain flood coverage and business income (“loss of rents”) coverage for a period of time not less than twelve (12) months following the insured casualty. Landlord shall be named as an additional insured on the Property Insurance. Landlord and Landlord’s mortgagee each shall be named as loss payees on the Property Insurance with respect to proceeds attributable to damage to the Premises and the Building. Landlord shall be named as loss payee on the Property Insurance with respect to business income coverage. Tenant shall not be a loss payee with respect to proceeds attributable to damage to the Premises or the Building or with respect to business income coverage, but Tenant shall be the loss payee for its personal property located in the Premises. The proceeds of the Property Insurance shall be used for the repair or replacement of the property so insured as provided in Section 11.03, except that if this Lease is terminated in accordance with Article 11 following a casualty, the proceeds applicable to the Building, Premises and leasehold improvements contained therein shall be paid to Landlord and the proceeds applicable to Tenant's personal property shall be paid to Tenant. In addition to the requirements set forth in Section 10.06 below, the Property Insurance policy shall be in a form and contain such endorsements as are normal and customary for property insurance policies carried on similar property or properties or by similarly situated parties.

10.06Policy Requirements. All insurance required to be maintained by Tenant shall be issued by insurance companies authorized to do insurance business in the State of Louisiana and rated not less than AVII in Best's Insurance Guide. A certificate of insurance evidencing the insurance required to be maintained by Tenant under this Article X shall be delivered to Landlord not less than thirty (30) days prior to the Intended Delivery Date, except that with respect to the Property Insurance, a certified copy of the policy shall be provided to Landlord at least ninety (90) days prior to the Intended Delivery Date. If Tenant does not provide the required insurance certificate or Property Insurance policy prior to the foregoing deadlines, then Tenant’s right to occupy the Premises following the Commencement Date shall be delayed by a period of time equal to any such delay, but Tenant nonetheless shall be obligated to pay Rent during any such period of delay following the Commencement Date. No such policy shall be subject to cancellation or modification without thirty (30) days prior written notice to Landlord and to any deed of trust holder, mortgagee or ground lessor designated by Landlord to Tenant, except that with respect to the Property Insurance Policy, Landlord and Landlord’s mortgagee each shall be entitled to receive not less than sixty (60) days advance notice of any cancellation, material change or non-renewal (for any reason other than non-payment of premium). Tenant shall furnish Landlord with a replacement certificate with respect to any insurance not less than thirty (30) days prior to the expiration of the current policy. Tenant shall have the right to provide the insurance required by this Article X pursuant to blanket policies, but only if such blanket policies expressly provide coverage to the Premises and theLandlord as required by this Lease.

10.07Waiver of Claims. Landlord and Tenant agree to, and each does hereby, waive all rights of recovery and causes of action against the other and against the respective officers, agents and employees of the other, and all parties claiming by, through or under either Landlord or Tenant, for any damage or destruction of any property of either Landlord or Tenant, notwithstanding that the damage or destruction results from the negligence of any or all of the parties in whose favor this agreement operates; provided, however, that the foregoing waivers shall apply only to the extent of any recovery made by the parties hereto under any policy of insurance now or hereafter issued or to the extent that a party would have recovered proceeds of insurance had the insurance required hereunder been maintained. Any applicable policy of insurance to be provided by Landlord or Tenant shall contain a clause allowing the foregoing waiver of claims and denying the insurer any right of subrogation against the parties in whose favor the waiver is made.

10.08Failure to Insure. If Tenant fails to maintain any insurance which Tenant is required to maintain pursuant to this Article X, Landlord may obtain such insurance on behalf of Tenant and Tenant shall be liable to Landlord for the costs incurred by Landlord in connection therewith. Except for commercially reasonable (as described in Section 4.01(C)) deductible amounts, neither party may selfinsure against any risks required to be covered by insurance without the other party’s prior written consent.

ARTICLE XI DAMAGE OR DESTRUCTION

11.01Total Destruction. This Lease shall automatically terminate if the Premises are totally destroyed.

11.02Partial Destruction of Premises.

(a)If the Premises are damaged by any casualty and, in Landlord's reasonable opinion, the Premises (exclusive of any Alterations made to the Premises by Tenant) can be restored to its preexisting condition within one hundred eighty (180) days after the date of the damage or destruction, Landlord shall, upon written notice from Tenant to Landlord of such damage, except as provided in Section11.04, promptly and with due diligence repair the damage to the Premises as provided in Section11.03. If, in Landlord’s reasonable opinion, the Premises can be restored within one hundred eighty (180) days after the casualty, but the restoration is not substantially completed within two hundred ten (210) days after the date of the casualty (plus reasonable extensions attributable to Tenant Delays or Force Majeure Delays), Tenant may terminate this Lease by giving written notice to Landlord no later than thirty (30) days after said deadline, but prior to the substantial completion of the repairs.

(b)If such repairs cannot, in Landlord’s reasonable opinion, be made within said one hundred eighty (180) day period, then either party may, at its option, exercisable by written notice given to the other party within thirty (30) days after the date of the damage or destruction, elect to terminate this Leaseas of the date of the damage or destruction. In the event neither party elects to terminate this Lease as provided herein, Landlord shall, at Landlord’s expense, repair and restore the Building as provided in Section 11.03, and, in such event this Lease shall remain in full force and effect but the Rent shall be abated as provided in Section11.03.

11.03 Repair and Restoration Obligation/ Rent Abatement. Landlord’s restoration and repair obligation contained herein shall consist of repairing or restoring the Premises, including repairing or restoring the Work (as defined in the Work Letter attached hereto) and all leasehold improvements contained within the Premises that were either subsequently constructed with Landlord’s consent pursuant to Article IX of this Lease or were Alterations not requiring Landlord’s consent as provided in the last sentence of Section 9.01; provided however such restoration and repair obligation shall be limited to the amount of insurance proceeds received by Landlord from the Property Insurance policy required to be maintained by Tenant pursuant to Section 10.02. Landlord shall not be obligated to repair or restore any Alterations performed without Landlord’s consent, other than those Alterations not requiring Landlord’s consent as provided in the last sentence of Section 9.01, and Landlord shall not be obligated to repair or restore Tenant’s personal property or trade fixtures. Until such repairs or restoration are completed, the Rent shall be abated from the date of damage or destruction in the same proportion that the rentable area of the portion of the Premises which is unusable by Tenant in the conduct of its business bears to the total rentable area of the Premises. Notwithstanding the foregoing, the amount of Rent abatement provided herein shall not exceed the amount of proceeds received by Landlord under the business interruption (“loss of rents”) coverage maintained by Tenant pursuant to Section 10.02.

11.04 Exceptions to Landlord’s Obligations. Notwithstanding anything to the contrary contained in this Article XI, Landlord shall have no obligation to repair the Premises if either: (a) the Building in which the Premises are located is so damaged as to require repairs to the Building exceeding twenty percent (20%) of the full insurable value of the Building; or (b) (Intentionally Deleted); or (c) the damage or destruction occurs less than two (2) years prior to the Expiration Date, exclusive of option periods. In the event Landlord does not elect to repair the Premises, this Lease shall terminate upon notice to Tenant of Landlord’s election not to repair or restore the Premises.

11.05Property Insurance Deductible. In the event a claim is made by Tenant, Landlord or an additional insured under the Property Insurance policy required to be maintained by Tenant pursuant to Section 10.02, Tenant shall pay to Landlord the amount of the deductible for such policy, except to the extent that such insured claim arises from or is a result of Landlord’s negligence or willful misconduct.

* These are excerpts from the insurance and casualty sections of the lease and certain other provisions (e.g. indemnity and liability insurance) have not been included. The appropriateness of using the clauses above or similar language in a lease, of course, will depend on the particular facts and circumstances of the transaction.