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 Leasing Your School Can Make You Responsible For It

I bet many of  you are in a leased facility.  I wonder if you've read your lease carefully.  Did you share it with your insurance agent?  If not, you might get some nasty surprises. 

Most commercial leases today hold the tenant responsible for the air conditioning unit.  That's a part of the building.  As a tenant, you don't typically insure the building.  Getting that AC unit insured can be tricky, but if you don't get it insured, you can get left holding the bag on a $7,000 - $10,000 bill.

So, why is it tricky to insure an AC unit?  The first issue is insurable interest.  This is a principle that applies to all insurance that says "You can't insure it, if you don't have an interest in it".  This is why you can't insure your neighbor's house and profit if it goes up in flames.  You have no insurable interest.  In the case of the AC unit, you don't own it, but you are contractually obligated for it financially.  So, we established insurable interest there. 

Now we have to figure out how to insure it on a property policy.  You cannot insure it as personal property, because it is a permanent part of the building.  You cannot insure it as tennant's improvements and betterments because that coverage says you had to personally purchase the improvement and betterment.  Usually the AC unit is already in the building when you move in, so you didn't personally purchase it.

So, we've talked about how you can't insure it.  How can you?  It must be listed as building coverage and the insurance company needs to know it is just the AC unit for which  your lease holds you responsible.  This is the only way you and the insurance company will be on the same page from the beginning.  This avoids the potential for problems or a denial at claim time.

The other consideration you have when you're responsible for the AC unit is mechanical failure.  Insurance policies do not cover mechanical failure.  That puts you back in the position of having to replace the AC unit when it just wears out.  It is probably wise to have a conversation with  your landlord about this issue now.  Are you truly willing to provide a new AC unit for their benefit?  Are you able to negotiate this point and get the landlord to accept repsonsibility for the AC if it wears out?  If  not, make sure you have a Systems Breakdown endorsement on your property insurance.  It surely will not cover every type of mechanical breakdown but it will give you more coverage than a standard property insurance policy.
Keep your cool!  Keep the AC insured.
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