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Risks : IAR

The insurance by this Policy extends to include tenants improvements and alteration to Landlord’s property insofar as the Insured is responsible therefore..

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The insurance professional is expected to be able to identify exposures for his/her client and, in some cases, recommend the appropriate insurance protection that addresses, even if only to a limited extent, these exposures. The purpose of this article is to address the exposures of tenant’s improvements and betterments from the tenant’s perspective—and not that of the landlord—and to offer some potential options for insurance protection.

What are tenants’ improvements and betterments?

The very first thing the insurance professional must do is determine what a tenant improvement and betterment is and is not. There are two primary sources to assist with this determination: Black’s Law Dictionary and ISO’s Building And Personal Property Coverage Form.

Black’s Law definition

Black’s Law Dictionary defines betterment as “an improvement that increases the value of real property; esp., an enhancement in the nature of an alteration or addition that goes beyond repair or restoration to a former condition.” Improvement is defined as “an addition to real property, whether permanent or not; esp., one that increases its value or utility or that enhances its appearance.” Alteration is defined as “a substantial change to real estate, esp. to a structure, usually not involving an addition to or removal of the exterior dimensions of a building’s structural parts.” And addition is defined as “a structure that is attached to or connected with another building that predates the structure; an extension or annex.”

ISO definition

ISO, in its Building And Personal Property Coverage Form CP 00 10, defines “improvements and betterments” as “fixtures, alterations, installations or additions: (a) Made a part of the building or structure you occupy but do not own; and (b) You acquired or made at your expense but cannot legally remove.” (The “you” in the definition refers to the named insured.)

ISO’s definition specifically mentions fixtures. Going back to Black’s Law Dictionary, fixture is defined as “personal property that is attached to land or a building and that is regarded as an irremovable part of the real property, such as a fireplace built into a home.” But this must be contrasted from the tenant’s perspective with a trade fixture: “removable personal property that a tenant attaches to leased land for business purposes” This would include items such as a display counter or shelving. These items may be attached to the realty, but the tenant is able to “legally remove” them. Therefore, under ISO’s definition, trade fixtures are clearly not improvements and betterments.