[Washington] I'm in a NNN commercial lease, and my landlord is requiring earthquake insurance. Any advice for negotiating this?
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[{"id": "fdszm6a", "text": "That IF in the section you bolded is a key word. Get proof that the lender requires it, he didn't have the right to be  charging you for any earthquake insurance this whole time unless the lender required it or you wanted it.", "replies": [{"id": "fdt2m0e", "text": "Thanks so much for responding! I'm definitely planning on reaching out to the management company again, and I'll be sure to ask for proof.", "replies": [{"id": "fdtknmt", "text": "Jack jack,  go to the clerk of court website for your county and plug the ownership entity's name into the deed search section to see if the property has a mortgage.  Even thought the LL has owned it a long time, it could still have a mortgage.  Have you been asked to sign an estoppel or SNDA during your tenancy?  That would mean there is a mortgage\n\nIf you don't find one, that's just more ammo for your dealings with the landlord", "replies": [{"id": "fdtvsq7", "text": "Thank you for the advice! I checked through the county's public records and I did not see any liens on the property. Only documentation I see is that the landlord transferred the deed from his name to an LLC. I did not sign an estoppel or SNDA. I'm fairly convinced for various reasons that the property does not have a mortgage. That said, as other users in this thread have mentioned, the quote I shared is in reference to Tenant's Property Insurance while there is a separate clause for Landlord's Insurance that states the landlord can carry any insurance they deem \"reasonably appropriate.\" It may be that I don't have any options here. But thank you for the input!", "replies": [{"id": "fe5sxf4", "text": "Are there are other tenants in the building? Maybe you could ask them how they've handled it etc.   This provision sounds to me like a boilerplate that he LL or property mgt firm wants to have in in case a lender down the road requires it.  The current landlord could put a new mortgage in place or wants the leases to meet typical current lender requirements in case they sell the building.  My current employer has about 20 retail type operations and a LL we rent from in 3 locations has become obsessed about us having business interruption insurance - it is incredibly expensive &amp; in 40 yrs we've never had a facility shut down.  \n\nIt would be good to try to sound tactical and cooperative, you could say you'd be glad to have your insurance guy look over the LL's lenders requirements but you had heard or been told that there was no loan in place for the property.  Sometimes I've dealt with these type of issues by asking a landlord or their property manager if they are trying to address a specific concern, was there an incident in the past that precipitated this requirement.   \n\nRealistically, if the earthquake of the century happened and all the stuff in your space was destroyed, it's likely the building would have significant enough damage where you could terminate the lease under a casualty or damage/destruction clause.  Most commercially leases have a provision that if the building is severely damaged or totally destroyed, either party can terminate.  That way the tenant isn't tied to a building that may take a year or more to repair or rebuild, and a landlord is not obligated to rebuild if leases are close to expiration or they are better off selling the land for redevelopment.", "replies": [{"id": "fei3xko", "text": "Thanks for your advice! Unfortunately, there are no other tenants in the building. It's possible that the landlord wants to have the insurance in case they want to sell or develop, but I think that's unlikely. A local broker tells me that most lenders don't require earthquake insurance in this area. And I'm fairly certain the landlord is not interested in selling or developing.\n\nIt seems like the landlord and property manager want the insurance for the sake of having it and feeling completely secure about their property, especially since they don't have to pay a dime of the costs. It seems like I don't have any options other than just paying whatever they want me to pay. Anyway, thanks again for your help!", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fdt0ob2", "text": "What kind of space are you in?  Office? Industrial? Retail?\n\n(I\u2019m a broker in WA state)", "replies": [{"id": "fdt2017", "text": "Thanks so much for responding! I'm in a retail space in Seattle.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fdt4ldf", "text": "The section you quoted is in reference to Tenants business and personal property insurance. You need to refer to the section of the lease that references CAM charges and Landlords insurance.", "replies": [{"id": "fdt87xa", "text": "This. What's the lease say about CAM charges.", "replies": [{"id": "fdtbkco", "text": "Thanks for responding! I replied to the above comment.", "replies": [], "depth": 3}], "depth": 2}, {"id": "fdtbhnt", "text": "Thanks for your response! I only included that quote because that's what the management company sent me and it's the only part of the lease agreement that explicitly mentions earthquakes. The CAM section of the lease agreement mentions insurance premiums without much context. It reads: \"As used herein, \"Common Area Charges\" shall mean all costs of operating, maintaining and repairing the Premises, the Building and the Property and all Common Areas thereon, determined in accordance with generally accepted accounting principles, and including without limitation the following: .... insurance premiums paid by Landlord and (to the extent used) deductibles for insurance applicable to the Property.\" \n\nI don't see any further mention of insurance in the CAM section. Does this mean they can charge me any and all insurance related to the building?", "replies": [{"id": "fdtc7ou", "text": "&gt; including without limitation the following: .... insurance premiums paid by Landlord\n\nThis is where you are out of luck unfortunately. If the Landlord wants Unicorn Rampage Insurance, he can add that to your CAM charges. \n\nIt sounds like the Property Manager doesn't understand what they needed to send you and sent the wrong section (or had a lackey do it). Sorry, that's really unfortunate. You may want to check with your own insurance coverage to see if the Owner's expanded coverage may lower any of your other premiums.", "replies": [{"id": "fdtebnh", "text": "Yeah, now that I'm reading the CAM section of the lease agreement, that's what I was afraid of. \n\nFunny thing is that I spoke with the VP of the management company directly, and they pointed me to that specific part of the lease agreement. Anyways, thanks for your explanation and advice.", "replies": [{"id": "fdtmhnn", "text": "It's bad when reddit strangers can offer better guidance than the actual management company :-) At least you have a direction to explore now.", "replies": [{"id": "fdtusbf", "text": "Right? Well, it's great that there are strangers out there who are willing to help.\n\nThere's actually a clause about Landlord's Insurance that I missed earlier because I was trying to read through the lease agreement on my phone. The Landlord's Insurance clause reads as follows: Landlord shall carry special form clauses of loss coverage property insurance of the Building shell and core in the amount of their full replacement value, liability insurance with respect to the Common Areas, **and such other insurance of such types and amounts as Landlord, in its discretion, shall deem reasonably appropriate.** The cost of any such insurance shall be included in Common Area Charges, and if such insurance is provided by a \"blanket policy\" insuring other parties and/or locations in addition to the Building, then only the portion of the premiums allocable to the Building and Property shall be included in Common Area Charges.\n\n&amp;nbsp;\n\nI'm assuming the landlord would say earthquake insurance is reasonably appropriate? Is there any grounds to argue that earthquake coverage is not reasonably appropriate?", "replies": [{"id": "fdtxvhk", "text": "&gt; Is there any grounds to argue that earthquake coverage is not reasonably appropriate?\n\nSadly you can't skip over the part prior where it says \"Landlord, in its discretion, shall deem\"", "replies": [{"id": "fdtz9pr", "text": "Thanks for your input! That's what I'm figuring, and it's quite unfortunate. From my perspective, earthquake coverage seems excessive. Recent seismic hazard maps created by the USGS show that our neighborhood has a low risk of shaking during an earthquake relative to other areas of the city. It just seems unlikely to me that an earthquake would cause any property damage. Oh well...", "replies": [{"id": "fdu1qxd", "text": "Based on my family longevity and good health, it's very unlikely that I will die before the age of 90, but I still pay for life insurance. Imagine if you owned the building, would you pay for the earthquake coverage? What if your entire net worth, and therefore your only income, was tied up in that building? Also, if the risk is so low, why are the underwriters increasing the premiums by such a large percentage?", "replies": [{"id": "fdu5to9", "text": "I certainly understand your perspective, and I agree that preventative measures are usually great. \n\nI actually own a commercial building myself, in which I conduct another business. For this building that I own, I consulted local experts and insurance agents about the utility of having earthquake coverage, and I was advised that earthquake coverage is not a sound financial decision since the premiums are so excessively high. This is why I'm frustrated that my landlord at the other building is requiring earthquake coverage. \n\nSo then why are the premiums high when the risk is relatively low? For starters, there is practically no deductible for this earthquake insurance policy. Lower deductible = higher premiums. Second, the landlord reported a building value that is manyfold higher than the value assessed by the county or even the true market value. Most of the property value is due to the land, while the value of the building itself is quite low.\n\nThat said, I completely agree with you that I would likely have greater peace of mind if I did have earthquake coverage for my commercial building.", "replies": [{"id": "fdy16j2", "text": "Keep in mind that the best insurance is based on replacement cost, not market value or appraised value, so the building limit may be appropriate. Not saying you shouldn\u2019t try to negotiate out of the requirement but don\u2019t want you to get blindsided in the negotiation process.", "replies": [], "depth": 11}], "depth": 10}], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fducml0", "text": "If they referred you to the portion that says if the lender require it they can require it, they are saying they are required to have it. What more are you wanting from them?", "replies": [], "depth": 1}, {"id": "fdvz8fl", "text": "This is easy. Refuse to cover EQI cost, locate an alternative location, and ask the LL if they are willing to lose the deal over EQI.", "replies": [], "depth": 1}, {"id": "fdws0yz", "text": "Does your lease permit you (as the tenant) to audit operating expenses from prior years?", "replies": [], "depth": 1}]