Multi-Family Complexes (Apartment and Condo)



Lease/Declaration Provisions

Most important in arranging insurance for apartments or condominiums is a study of the pertinent provisions of the leases or condominium declarations being used.

Lease Cancellation Clause For rental apartments other than cooperatives, a major provision is the lease cancellation clause. It will tell under what circumstances the lease may or must be cancelled by the owner or the resident. Particularly important is the provision relating to inability to occupy the premises following damage by fire, wind or other loss. These provisions vary widely from lease to lease, and with each variation a different approach to insurance needs may be required.

In one typical provision, rent continues for a stated time (60 days is common) after which, if the premises have not been repaired sufficiently for reoccupancy, the lease may be cancelled at the option of the resident or the landlord, or in some cases by either one. Alternatively, the lease may allow immediate termination of rent if the premises clearly cannot be restored to occupancy within the stated period of time. The effect of the cancellation-by-loss provision (assume a 60-day clause) may be to cost the resident two months rent (recoverable under the resident’s policy Item D, additional living expense coverage) after which time, the resident having moved elsewhere, the lease can be cancelled. If the owners intend to repair or rebuild but cannot do so within the 60 days, they can negotiate with the present resident to resume occupancy at the same or perhaps higher rent, or can find new residents.

For the landlord, the loss of rents can be covered by rental value insurance, a form of business income coverage which can be added to the property or package insurance program. If the property is not rebuilt, the rental value coverage would still apply, covering the rental loss for the time it would have taken to rebuild.

Another provision sometimes used in leases is a rental abatement clause which, instead of allowing cancellation of the lease, permits abatement of the rent until the premises are again habitable. This has the advantage for the resident of preventing the landlord’s cancellation of a lease favorable to the resident and gives a further incentive (along with a similar requirement of the rental value insurance) to the landlord to proceed quickly on repairs in order to begin collecting rent again as soon as possible.

Insurance Provisions

Both the condominium declarations and the apartment leases will generally contain an insurance clause spelling out who—condominium unit owner or unit owners in common (or the association); co-op resident or residents in common (or association); or resident or owners—will carry what kinds of insurance and generally for what minimum amounts.

These provisions can vary widely and should be clarified for anyone charged with responsibility for arranging the insurance. Also, their sufficiency or lack thereof should be analyzed and recommendations made to correct any deficiencies in amounts or limits of coverage or omissions of any important coverages. It is relatively simple to bring the actual insurance up to the requirements spelled out in the condo declarations or lease. But where the stated requirements are inadequate, making changes can be a major undertaking. Also, the purchase of insurance not required by the declarations or lease can give rise to criticism by some condominium or co-op occupants and possibly even suit against the managers, officers or board for allegedly wasting assets intended for other purposes.

Conflict Over Coverage Interpretations

Insurance language is general in nature and often quite vague as to its intended application to a particular set of circumstances. It should be kept in mind that in the absence of clear evidence of the intent of the parties in negotiation of the details of coverage, an ambiguity may be found to exist. In most cases involving insurance on apartments, the insurance policies are drafted by the insurers or their representatives and...