All about lessor's risk only (LRO) insurance

For owners of leased commercial properties like apartment buildings, retail complexes or warehouses, lessor’s risk only insurance is a must-have when it comes to protecting your investment. 

Commonly referred to as landlord or LRO insurance, lessor’s risk covers you in the event that one of your tenants sues you for property damage or injuries sustained while on your premises. It is often bundled into a comprehensive insurance package that includes general liability and commercial property insurance, but is its own distinct form of coverage. Let’s talk in more detail.

What does lessor’s risk only insurance cover? 

Perhaps a tenant slips and falls on a freshly frozen walkway, resulting in a broken arm, or a business fire leaves several of your retail units unusable. Lessor’s risk only coverage would pay for medical bills, space renovations and/or legal fees related to tenant-occupied spaces if they sued you. 

Other common risks typically covered by lessor’s risk only policies include: 

• Weather damage.
• Smoke damage.
• Vandalism.
• Theft.
• Water-related damages (such as from burst pipes or sewer backups).
• Automobile impacts on the property. 

LRO insurance policies can also be tailored to cover risks specific to your business, such as damage from pollution or the loss of important data from computer systems, as well as for your specific property layout or space. 

Remember, for more specifics on what LRO covers, contact your agent today.

What doesn’t LRO insurance cover? 

Lessor’s risk only coverage only applies to the liability faced by a landlord regarding damage or injuries sustained by tenants on your property. It does not cover damage or injuries incurred by third parties (that’s general liability) or direct damages to the landlord’s property or assets (that’s commercial property insurance). 

This is why LRO is often packaged with other forms of coverage to provide broad-based risk protection, sometimes called a businessowner's policy. 

LRO insurance also does not cover damages to a tenant’s own property — they will need to have their own renter’s insurance policy for that. 

Lenders will likely require you to obtain lessor’s risk only coverage if your commercial property is financed or you intend to obtain financing at any point in the transaction. That coverage will then need to remain in place through the life of your loan. 

In order to qualify for a lessor’s risk only policy, tenants must occupy at least 75% of a given property. While underwriting requirements will vary by carrier, they will typically be looking for buildings that are full or largely occupied, well-maintained and free of electrical, HVAC and plumbing issues. 

Lessor’s risk only insurance can be confusing for new property owners, but don’t let that deter you from securing this essential form of coverage. Our friendly and knowledgeable agents can help tailor a policy for your property that protects your investment.