Businesses large or small who rent space at a very favorable per square foot price may purchase coverage for the cancellation of that favorable lease contract. This is commonly called “Leasehold Interest Coverage”. Cancellation of the lease must be caused by the direct physical loss or damage to the real property being leased. Example: A business has a 10 year lease on a 5000 per square foot building at $15.00 per square foot and the property is destroyed after 5 years. The owner decides not to rebuild and terminates the lease. The business must find a new location. The best lease that can be obtained is now $20. per square foot. This is $25,000 per year increase over the previous contract. Since there was 5 years remaining the total increase would equal $125,000. “Lease hold interest” insurance would pay the business $125,000 less any deductibles. Other coverages include any prepaid rent. Prepaid rent is sometimes paid because of favorable discounts offered by the landlord. Rent bonuses are also covered under this policy. Rent bonuses are paid to landlords to keep other potential renters from grabbing up a favorable lease. Also insured is the “Use Interest” of improvements, such as fixtures, alterations, walls, counter tops and improved offices which were installed and paid for by the tenant. This type of coverage must be carefully structured by your licensed agent or risk manager to be accurate before added to your business policy. Some business owners policies include this coverage. See your agent for assistance or contact us for help.
