A tenant spends sixty thousand dollars turning a bare shell into a salon, a clinic or a taproom — walls, wiring, plumbing, cabinetry, flooring, a hood. Then a fire takes it. The landlord's policy pays for the building. The tenant's policy pays for the contents. Neither one, as written, necessarily pays for the build-out.
It is the work a tenant installs that cannot be taken away at the end of the lease. If you can unplug it and carry it out, it is business personal property. If it is fixed to the building — the partitions, the recessed lighting, the tile, the built-in casework — it is an improvement and betterment, and it is insured under its own limit.
The tenant buys a policy with a contents limit that reflects what they could carry out the door: the chairs, the till, the stock. Say fifteen thousand. The build-out that cost sixty thousand sits in a separate bucket the tenant never funded, because nobody explained the bucket existed. The claim pays the fifteen and stops.
Most commercial leases say improvements become the property of the landlord, either immediately or at the end of the term. That single clause drives the whole answer. If the improvements belong to the landlord, the landlord's building limit should reflect them — and most landlords never adjust the limit after a fit-out, so the building is quietly underinsured the day the tenant finishes.
If the lease leaves them with the tenant, or the tenant has use of them for the term, the tenant carries the limit. Either way, both parties should know which it is before a loss, and both limits should be reviewed after any significant build-out.
Landlords: after a tenant fit-out, tell your agent what went in and what it cost. Your building value has changed. Tenants: price the improvements separately from your contents and insure them separately. Bring the lease to the conversation — the insurance answer is written in it.
This is one of the quietest and most expensive gaps in commercial property, and it turns up on the day of a claim when nobody can do anything about it. See our landlord insurance page.
Tell us what went in and what it cost. We will make sure the improvements are on a limit and on the right policy — landlord or tenant.
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