Lessor’s Risk Only (LRO) Insurance | Insureon (2024)

Lessor’s risk only (LRO) covers commercial property landlords against certain risks and lawsuits from their tenants. If a tenant sues you for a covered loss, your LRO policy would cover your legal fees and tenant reimbursem*nt for property damage or injuries.

Also known as landlord insurance, it provides liability coverage to commercial building owners in case of a tenant lawsuit over incidents such as:

• Slip-and-fall accidents with bodily injury
• Weather damage (wind, hail, snow, and ice)
• Theft and vandalism
• Fire and smoke damage
• Water-related damage (burst pipes / backups)
• Vehicle accidents at the property
• Data loss (if the tenants use the landlord’s network or Wi-Fi)

LRO insurance may also include additional coverages as add-ons to your policy (e.g., pollution damage liability coverage).

Any commercial property owner should consider this insurance coverage. This is especially true for small business owners, as even one lawsuit could have a significant impact on your bottom line. Lenders typically require this insurance coverage for any loans involving commercial real estate.

The types of properties covered by lessor’s risk include apartment buildings, shopping centers, office space, and warehouses.

A lessor’s risk insurance policy is intended for landlords who occupy less than 25 percent of leasable space within a building, so it would not apply to a duplex or a two-flat dwelling where the landlord occupies half the building.

While lessor’s risk only and general liability insurance both offer financial protection from lawsuits, LRO covers risks involving a tenant’s use of the property.

General liability covers common business risks like customer injury, damage to a customer’s property, and advertising injury.

If someone sued you for injuries after a slip and fall accident on your property, either your LRO insurance or your general liability policy would cover the lawsuit and damages:

• Lessor’s risk covers injuries and lawsuits involving a tenant
• General liability covers injuries and lawsuits involving the general public, such as a customer or a delivery person visiting one of your tenants

Many commercial landlords will require their tenants to carry general liability insurance.

Lessor’s risk insurance does not cover a tenant’s business property, such as office equipment, furniture, computers, and supplies. This is why many tenants buy business renter’s insurance, which covers damage from fire, vandalism, lightning, and other hazards.

LRO insurance also doesn’t cover the building itself against damage from fire, theft, vandalism, weather-related damage, and similar losses that are typically covered by commercial property insurance.

It does not, but most people who purchase lessor's risk only insurance can add building insurance coverage to their LRO policy, like a business owner's policy (BOP).

Building insurance offers protection for covered loss events and can prevent financial losses during a temporary shutdown for repairs in which tenants are not able to rent space in the property.

Criminal negligence by a landlord also isn’t covered, such as setting a fire to receive an insurance claim.

In deciding whether to offer you coverage, and how much your premium should be, your insurance company will take a variety of factors into account. These include:

• Building age, condition, and any renovations
• Location
• Any existing hazards
• Occupancy/vacancy rate
• Security and fire systems (video cameras, burglar alarm, smoke detectors, fire extinguishers, sprinklers, etc.)

An insurance company will also consider the type of building, as retail complexes are likely to see more foot traffic and face more risks, than office space.

While LRO insurance covers major real estate risks, it does not provide complete protection. Other insurance policies to consider include:

Commercial auto insurance: This policy covers vehicles owned by your business. It typically pays for accidents and damages related to theft, weather, and vandalism.

Commercial umbrella insurance: Provides additional coverage for liability claims made on general liability, commercial auto, or employer’s liability insurance, once a policy's limit is reached.

Cyber liability insurance: Also called cyber security insurance, this policy can cover legal and other associated costs related to a data breach or software attack.

Errors and omissions insurance (E&O): Also called professional liability insurance, this policy can cover the costs of lawsuits related to the quality of your work.

Workers’ compensation insurance: Workers' comp is required in almost every state for real estate businesses that have employees. It can cover medical expenses for work injuries.