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It’s no secret that environment can really affect mood.
I mean, would you rather get a haircut in a bare, office-like unit with fluorescent lighting, concrete walls and paneled ceiling, or a comfortable oasis with warm lighting and zen features and installations?
I think we can all agree on the latter.
Well, most businesses have caught onto that and prioritize creating a comfortable and inviting environment conducive to happiness and productivity.
We’ve even done it here at Berry Insurance! A few years ago we completely renovated our office space in Franklin. We added and removed a few walls, installed new fixtures and flooring, added some cabinetry and installed a beautiful sliding glass door and wall to our new conference room.
With these changes, the space was instantly transformed into a much more inviting and functional space. But, the changes were all permanent. If we ever moved, they would stay in the unit.
So if your business leases your location and has done something similar, it should raise some questions. You paid for the changes, but they will stay in the unit forever. So do you own them, or does your landlord? What would happen if the renovations were ever damaged? Who is responsible to insure them? Are they already covered under yours or your landlord’s property insurance?
In this article, we’ll answer all those questions. We’ll give you an overview of commercial property coverage as a renter, then we’ll define improvements and betterments coverage to help you determine if you need to add it onto your property coverage.
What your insurance covers when you lease
When you lease your building, there are some aspects of your property that will be covered by your landlord, and other aspects you will need a property insurance policy for.
For the most part, whatever you own is yours to cover.
Your landlord owns the building you rent, so they will have property insurance to cover the actual structure and permanent fixtures of the property.
All of the possessions you own that you would be taking with you when you leave? That’s up to you to insure.
How do you do this? Through a commercial property insurance policy.
What is commercial property insurance?
A commercial property insurance policy will cover all of the physical property you have for your business, whether it be in your building, off site, or in transit. This includes things such as furniture and equipment, supplies, computers, inventory, customer’s goods, and signage.
The policy will provide financial reimbursement to help recover the cost of items damaged, lost or destroyed from various incidents including:
- Fire
- Theft and vandalism
- Storm damage (except flood or seepage from rain)
- Explosions
- Water backup (optional)
- Earthquakes (optional)
This type of coverage also provides some loss of income if one of these instances temporarily closes your business.
If you had damage to your property, you would simply need to file a claim with your insurance company, and they would reimburse all repairs and replacements up to the coverage limits you selected on your policy.
To learn more about commercial property insurance, check out this article: What is Commercial Property Insurance?
What if I make improvements to the unit I’m leasing? Are they covered by insurance?
We already went over what property is your landlord’s to insure and what property is yours to insure. However, when it comes to improvements you make to the unit, there’s a little grey area when it comes to ownership.
On one hand, you paid for it and navigated the installation, so you own it.
However, it is now a permanent part of the building unit. If you ever were to move out of your unit, you wouldn’t be taking that with you. In that sense, your landlord kind of owns it, right?
So what does insurance have to say about that?
Generally, your lease agreement will indicate that any improvements you make will be up to you to repair. (But you should fully read your lease to make sure this is the case for you.) Essentially, your landlord is saying. “I didn’t pay for it. I didn’t choose to have it. I don’t use it. You’ll have to take care of it if it’s damaged.”
If you were to ever move out, your landlord would essentially own the improvements you made. They will probably be able to charge more in rent to the next renter because of the improvements you made, but they will also need to pay to insure those items on their commercial insurance property.
But until then while you’re in the unit with the improvements you made, you will need to insure them on your policy. But because your commercial property insurance we talked about above doesn’t cover permanent fixtures (because that is typically something the property owner’s property insurance would cover), you’ll need a different coverage.
Phew, it took awhile, but we are finally at the topic I wanted to talk about … improvements and betterments coverage!
Improvements and betterments coverage: what it is and what it covers
Also known as tenant improvements and betterments (TIBs), improvements and betterments coverage is an optional coverage on your commercial property insurance policy which covers any of those improvements you make to your unit.
This coverage essentially extends commercial property coverage to these items, so it covers all the same damage or loss causes, subject to the same limits and deductibles as all your other property.
When you might need improvements and betterments coverage
It may seem obvious. If you’ve made any permanent improvements to your unit, you probably want the coverage, right?
Well that’s not always true. You probably only want improvements and betterments coverage if you made certain types of improvements.
For example, if you just painted, you probably don’t need the coverage. (Not that the new paint color you picked wasn’t a huge improvement. That old color was so ugly, right?) It’s just that if the walls are damaged, they will be replaced anyways under the owners property insurance.
However, if you’ve made any sort of installations, you probably want to insure them under improvements and betterments coverage.
Some examples of the types of things you might improve or add could be:
- Flooring
- Lighting
- Doors
- Walls
- Countertops or cabinets
- Built-in shelves
- Sinks/toilets/permanent appliances
What improvements and betterments coverage costs
Fortunately adding improvements and betterments coverage to your commercial property insurance shouldn’t increase your premium too much.
It will however, vary based on how much coverage you need.
You can typically expect the coverage to be about 0.15-$0.50 per $100 of coverage. That means if you get $100,000 in coverage for improvements, it should cost $150 - $500 per year.
Don’t let all your hard work go to waste
You made your improvements for a reason … they were improvements. (Uhh, no offense to the previous unit.)
You wanted functionality. You wanted an inviting space. You wanted the environment to fit your company's personality and vibe. You wanted it to motivate your employees.
And your improvements did all of that!
If your building were to ever experience damage, you would certainly want them to be covered so your space can return to exactly how you know and love it.
So if you want to make sure all of the improvements you made to your space are covered, reach out to your insurance agent. In addition to helping you with improvements and betterments coverage, they can also help you thoroughly review all of your commercial insurance policies to make sure you don’t have any gaps in coverage, or aren’t paying more than you need to.
