Who is Responsible for Improvements on Leased Property?

Businesswoman reviews lease agreement in office.

From spiffing up a single-bedroom apartment to overhauling a leased retail space, an improvement made on leased property changes the value of the property overall. Unlike with possessions, many improvements (or betterments) made to the property cannot easily be taken with them, so who is responsible for cover the increased value when it comes to insurance: the lessee or the landlord? Today we’re going to look at how improvements on the leased property should be covered and whose responsibility they should be.

Defining Improvements Made to a Property

Known as “Improvements and Betterments,” these are enhancements made to a property that: A) improve the property value of the leased property and B) cannot be removed (are a permanent addition). Examples include changes to the physical structure of the property, such as floors, ceilings, and structures, as well as installing hard-to-remove improvements like improved wiring, built-in appliances, new HVAC, and other fixtures. They are all hard to remove and would be damaged if the building was damaged.

Defining Responsibility and Agreeing on Coverage

When a tenant is thinking about creating improvements or betterments on a property they lease, they need to start by consulting both their lease and their landlord. Many leases provide responsibilities and procedures for any improvements made on the property, such as stipulating who covers repairs and enhancements. Communication is key in these conversations and can allow both parties to come to an agreement on ownership and the responsibilities of that coverage, such as the needed increase in property insurance due to the increased value.

Insurance Needed for Property Improvements

As mentioned above, when a property’s value increases, the insurance coverage on the property needs to be increased as well. This can put improvements and betterments in a tricky position: tenants are usually only responsibility for insuring the personal property on a location, not its structure. A landlord may not want to cover additional costs, especially for specialty construction that might not be needed by the next lessee.

  • Treating Improvements and Betterments as Personal Property: The first option is to have the tenant take responsibility for coverage, at least until they leave the property. This works by considering the structural improvements as personal property and having them covered under their business insurance or renters insurance.
  • Increasing Coverage on Property Insurance for Landlords: Depending on the lease and improvements, the landlord may want to be responsible for the coverage. Not only does this make the process simpler, but they can also pass on the costs to the tenant by increasing rents due to the increase in premiums and higher property value.

The relationships between owners and renters can be a complicated one, regardless of which side you are on. If you want to learn more about the responsibilities and options when it comes to insurance coverages on leased properties and how improvements, betterments, and other changes to the property will affect coverage and responsibility, it’s time to contact the TJ Woods Insurance Agency. We can help you better understand insurance coverage from the perspective of a business, personal, or property ownership so you can make the right decisions when it comes to coverage.