My landlord requires insurance for my restaurant — what do I actually need?
A restaurant lease asks for specific coverage, not just "insurance": liability coverage at the limits it names with your landlord added to the policy, property coverage on what you built and own, and often income and liquor coverage. Find the insurance section and its exhibit, match each line to your policy, and send the landlord a certificate with the two required add-ons before you take the keys.
- The requirements sit in three places — the insurance section, the section where you promise to cover the landlord's costs, and an exhibit at the back — plus, in many restaurant leases, a kitchen clause.
- The landlord's protection comes from two written add-ons to your policy, not from the certificate. Send both with the certificate.
- The limit, the cancellation-notice period and who insures the build-out are often negotiable before you sign.
Where in the lease are the insurance requirements?
Usually in three places: an insurance section that lists the policies and amounts, a separate section where you promise to cover the landlord's costs if your business causes a claim, and an exhibit at the back with the exact wording. Restaurant leases often add a fourth — a kitchen clause that makes grease, hood cleaning and fire-suppression upkeep your job.
Read them together. The promise to cover the landlord's costs — lawyers call it the indemnity clause — is the one your liability insurance has to stand behind. If your policy doesn't respond to a claim the lease makes your problem, you can end up paying it yourself; check your own policy wording and ask your agent. The exhibit often names the exact policy wording the landlord wants. Our general guide to what a landlord can require covers any type of business.
The kitchen clause exists for a reason. Cooking caused 64% of restaurant fires, with an average loss of about $22,540 per fire, in national data for 2011–2013. (Source: U.S. Fire Administration) Expect the lease to require grease-trap service, hood and duct cleaning to the national kitchen-exhaust fire standard, regular service of the fire-suppression system, and records you can show on request. Your insurer may set the same conditions on your fire coverage, so one set of service records serves both.
What do the insurance words in my lease actually mean?
Three phrases do most of the work: adding the landlord to your liability policy, giving up your insurer's right to go after the landlord, and the two limit numbers. The first two are written changes to your policy that your insurer has to issue — a certificate cannot create them.
- Adding the landlord to your policy. Your liability policy can be extended to defend and pay for the landlord when a claim comes from your restaurant's operations. Insurers call that making the landlord an additional insuredAdditional Insured Another person or business covered under your liability policy for claims tied to your work or property, such as a landlord or general contractor. Insurers call them an additional insured. more →. One industry reference defines it as a party not automatically covered who is added at the policyholder's request, and lists owners of leased property among the usual examples. (Source: IRMI)
- Giving up the right to go after the landlord. After your insurer pays a claim, it normally has the right to recover the money from whoever caused the loss. The lease asks your insurer to give up that right against the landlord — a waiver of subrogationWaiver of Subrogation A policy add-on where your insurer gives up the right to pursue a party you agreed by contract not to blame after a loss. Insurers call it a waiver of subrogation. more →. The same reference describes it as the insurer acknowledging it has no right to recover from a liable third party after paying a loss. (Source: IRMI)
- The two numbers. "$1,000,000 / $2,000,000" means the most the policy pays for one incident — the per-occurrence limitPer-Occurrence Limit The most your policy will pay for a single incident, no matter how many people are hurt or make claims. Insurers call it the per-occurrence limit. more → — and the most it pays for everything in the policy year, the aggregate limitAggregate Limit The most your policy will pay for all claims combined during the policy year, no matter how many there are. Insurers call this the aggregate limit. more →. (Source: IRMI)
Both of the first two items are added to your policy as a written change — insurers call it an endorsementEndorsement A written change attached to your policy that adds, removes, or alters coverage partway through the term. Insurers call it an endorsement.. Each one is a separate add-on. Having one does not give you the other.
What does a restaurant lease usually ask for?
Liability coverage at stated per-incident and yearly limits with the landlord added, property coverage on your build-out and equipment, income coverage if a covered loss closes you, and often glass, liquor coverage and a promise of notice before cancellation. Your lease names its own amounts; read them, don't assume them.
Liability coverage is the one almost every lease asks for — one commercial-lease explainer calls it "by far the most common insurance coverage required in a commercial lease". (Source: Insureon) For context on the numbers, 85% of small businesses buying through one online agency chose $1 million per incident and $2 million per year, and 8% chose $2 million and $4 million. (Source: Insureon)
- Liability limits per incident and per year, on your liability coverage, with the landlord added.
- Property coverage on your build-out and equipment. Who owns the hood and the walk-in cooler matters. If the lease says permanent fixtures become the landlord's, the landlord may insure them; if you paid for them and they stay yours, they belong on your property coverage.
- Business income — coverage that replaces lost income and keeps rent paid while a covered fire or similar loss keeps you closed.
- Plate glass — some leases make the storefront glass your responsibility.
- Liquor coverage — if you serve alcohol, the lease may ask for coverage for when a guest you served goes on to hurt someone. Insurers call it liquor liability, and standard liability policies often leave it out.
- Notice of cancellation — a set number of days' warning to the landlord before your policy ends.
What should I send back to the landlord?
Send the certificate — a one-page summary of your coverage — together with copies of the two add-ons naming the landlord and waiving your insurer's right to go after them. Not the whole policy, and before you get the keys.
A certificate is evidence that certain types of coverage and limits were bought (Source: IRMI); the landlord's actual protection lives in the add-ons on the policy. Landlords typically ask for the certificate, and without it a lease application will likely be denied. (Source: Insureon) Our explainer on what a certificate of insurance is shows each box on the form and what it proves.
Most leases want proof before you take possession, because your contractors start work on day one of the build-out. Then send a fresh certificate at every renewal and every time you change insurers — a new insurer means new add-ons, and a lapse there can put you in breach. Franchise agreements and catering venues ask for the same paperwork in their own format; our guide to contract insurance requirements for restaurants covers those.
What can I negotiate in the insurance clause?
Three things are often worth raising: the limit, the cancellation-notice period, and which side insures the build-out. The insurance section is easier to change before signing than after.
- The limit. If the lease asks for a high per-incident amount, ask whether your liability limit plus extra liability coverage stacked on top — an umbrella policy — will satisfy it. That is often cheaper than raising the base limit.
- The notice period. Ask your insurer what notice it will commit to before you agree to a number. A lease that demands notice your insurer won't give puts you out of compliance on day one.
- Who insures the build-out. Settle in writing whether your policy or the landlord's covers the hood, walk-in, flooring and walls you paid for. Policies vary in whether tenant-made improvements count as building or contents, so the value has to sit in the right place. (Source: IRMI)
The state rules that sit underneath a lease — workers' comp and liquor law — are set out state by state in our guide to restaurant insurance requirements by state.
Frequently asked questions about restaurant lease insurance
No. The landlord's policy protects the landlord's building and the landlord's liability. Your equipment, your build-out, your lost income and claims against your business need your own policies.
The new insurer has to issue its own add-ons naming the landlord, and you send the landlord a new certificate. The old add-ons end with the old policy, so ask for the new ones to take effect when the old policy ends.
You can sign, but most leases require proof of coverage before you take possession. Send your agent the lease's insurance section and exhibit early, so the quote is built to match it rather than fixed afterward.
Have your lease's insurance section checked against your policy
Include the insurance section and exhibit from your lease with your quote request, so the coverage is built to match what the landlord asks for.