Most gym owners know they need general liability insurance, but what about the other policy types? Are these optional or required? What’s crucial vs. nice-to-have?
We’re talking about property insurance again today (spoiler, we have a lot to say on this topic, so stay tuned for even more posts in the future!). More specifically, we’re digging in on commercial leases and how the type of lease you sign interacts with your gym liability and property insurance.
First things first—here’s a quick outline on the 5 different types of commercial leases to help you understand the differences. Each lease type has it’s own advantages and disadvantages—and surprise, surprise, they also have different insurance requirements.
- Standard or Gross Lease: You’ll pay a fixed monthly rent. Your landlord will cover all property expenses, including taxes, property insurance, and maintenance.
- Advantages: You’ll have predictable monthly expenses and simple budgeting.
- Disadvantages: Your rent may cost more overall as landlords often account for potential increases in expenses over time.
- Insurance tl;dr: Your landlord covers the property insurance, but you’ll be responsible for getting your own General Liability and Business Personal Property coverage, as well as any other specific coverage your business needs (like Workers’ Comp, Commercial Auto, etc)
- Net Lease: There are 3 types of Net Leases. Each option varies in who pays for what. You’ll want to pay careful attention to these details in your lease so that you’re not surprised by unplanned costs at the end of the year, especially if you sign a Triple Net (NNN) lease!
- Single Net Lease (N): Tenant pays rent plus property taxes. Landlord covers other costs like property insurance and maintenance.
- Insurance tl;dr: Similar to a Standard Lease, you’ll be responsible for getting your own general liability and business personal property coverage.
- Double Net Lease (NN): Tenant pays rent, property taxes, and insurance. Landlord handles maintenance.
- Insurance tl;dr: Here, you’ll also be responsible for carrying insurance for the physical building, in addition to General Liability and Business Personal Property. This is usually referred to as Property or Commercial Property insurance and is different from Business Personal Property!
- Triple Net Lease (NNN): Tenant pays rent, property taxes, insurance, and maintenance. Although a triple net lease can look like a good deal, you’ll need to look at the total cost, not just the monthly rent payments.
- Insurance tl;dr: Similar to a Double Net (NN) lease, you’ll be responsible for Property insurance, as well as your General Liability and Business Personal Property insurance.
- Modified Gross Lease: This lease is a hybrid between Gross and Net Leases where you negotiate which expenses are covered by you as the tenant vs. your landlord.
- Advantages: Offers you more flexibility.
- Disadvantages: Requires detailed negotiations with your landlord.
- Insurance tl;dr: Because this is a hybrid lease, you’ll want to be super clear with your landlord which of you is paying for the Property insurance policy.
- Revenue-Based or Variable Rent Lease: Your rent adjusts based on your gym’s revenue.
- Advantages: Reduces your financial risk during slow periods.
- Disadvantages: Requires you to stay on top of detailed revenue reporting.
- Insurance tl;dr: Even though this is a variable rent agreement, you’ll want to be in agreement with your landlord on who is responsible for the Property insurance.
- Short-Term Leases or Co-Working Spaces
- Advantages: Offer flexibility for gym owners who want to test a market or minimize upfront costs.
- Disadvantages: May be hard to find a co-working spaces lease that welcomes a gym business.
- Insurance tl;dr: Since you’ll likely be one of many tenants in this type of lease, you’ll likely not be asked to have your own property insurance policy. However, this is always a smart question to ask!
Expanding on our tl;dr notes above, here’s a little bit more information the different types of insurance typically required for commercial leases.
Often, your landlord will already know what insurance they’ll require for you as a tenant, but you may find that you have some flexibility in negotiating these requirements with them. So, it’s always good to have your own understanding of this important business operational expense.
- Property insurance: This insurance covers the building structure against risk such as fires, storms, vandalism, and other specific perils. This policy protects your landlord’s assets, since they own the building, but is paid for and managed by you, the tenant.
- General Liability Insurance: Every gym owner needs a General Liability policy. In addition to protecting your own business’s liability, your policy will also include protections for your landlord, such as accident liability and damage to the rented premises. Your landlord will likely ask to be named as an Additional Insured on your liability policy.
: Even if your landlord covers the Property insurance, you’ll still be responsible for insuring your own equipment, inventory, and any improvements you make within the leased space. You’ll want to insure your property items for the cost of their full replacement value.- Business Interruption Insurance: Some leases require tenants to carry business interruption insurance. This is usually included with your Business Personal Property policy and covers lost income and any extra expenses if you’re unable to operate your business due to a covered peril. We wrote about this coverage here.
- Other specialized coverages: Depending on where you’re located, your lease might require additional insurance such as Flood or Earthquake insurance.
Of course, there’s always more to say on this topic! We’ll be talking about insurance for home gyms, if you coach from different locations, and what to do if you own your own building over the next few days, so subscribe to stay in the loop!
And as always, if you have specific questions, feel free to reach to one of our licensed insurance agents. Visit us at www.gyminsurance.com.
