Insurance Red Flags in Commercial Real Estate—and How to Avoid Them
Here’re some tips for commercial real estate agents when taking care of property insurances
One crucial—yet frequently overlooked—aspect of commercial real estate is navigating insurance requirements. Having a thorough understanding of insurance concerns can make or break a transaction, whether you're assisting clients with office leases, multifamily investments, or warehouse deals. In order to better serve customers and confidently close deals, this blog provides essential tips on insurance (especially in the state of California) that every commercial real estate agent should be aware of.
What You Always Want to Do
Get insurance requirements to your client as early as possible to avoid delays or last-minute surprises during the lease process.
Carefully reviewing all insurance requirements listed in the lease can help determine which are truly necessary versus boilerplate language that could cost your client unnecessary time and money.
Partnering with a qualified insurance broker is essential—they can provide accurate quotes, clarify confusing terms, and tailor coverage to the specific needs of the lease, often identifying where requirements can be negotiated or reduced.
Multi-family
For multi-family properties, obtaining a competitive and accurate insurance quote requires gathering detailed information up front. This includes current rents, the date and scope of updates to the roof, electrical, heating, and plumbing systems, and at least five years of loss runs. Insurers will usually inspect the property within two weeks of quoting to verify the condition and updates.
Also pay special attention to what’s not insurable now! It’s important to note that properties with Zinsco, Federal Pacific, or Stab-Lok panels—or those with knob-and-tube wiring—are generally uninsurable in the standard market due to the high risk of fire. These systems must be replaced to obtain coverage.
Another problem that owners, investors and brokers often run into is that the building is in an undesirable condition, and no insurance company is willing to get them insured. Fear not - If traditional insurance is not an option, especially for older or high-risk buildings, the California FAIR Plan may be used. However, this coverage is more limited, comes with longer waiting periods and more obstacles, and typically requires time-stamped photographs as evidence of the property's condition.
Warehouses
For warehouses - or industrial properties, agents need to identify the tenant and understand their business operations to accurately assess insurance risk. Activities such as auto body repair or cannabis cultivation may increase liability or be excluded from standard policies. It’s also critical to keep the building’s condition up to date and ensure that the replacement cost values are current, particularly given the increase in construction costs in recent years. If a warehouse is vacant, standard policies may no longer apply, and agents will need to seek out vacant property insurance. These specialized policies protect against risks like theft, vandalism, and accidental damage and are widely available, though they may come with strict eligibility criteria. Additionally, landlords should always require tenants to carry general liability insurance and name the landlord as an additional insured. Periodic property inspections are recommended to catch any tenant-caused damage that insurance might not cover.
Retail/Office
When arranging insurance for office or retail properties, it’s crucial to evaluate key factors that impact both risk exposure and coverage adequacy. Begin by reviewing the types of tenants and their business activities—professional office users typically carry lower risk, while certain retail uses (like fitness centers, vape shops, or beauty salons) may require additional coverage or come with higher premiums. Ensure all tenants maintain proper general liability insurance and list the property owner as an additional insured. Assess the building’s systems—aging HVAC, electrical, or roofing components can affect insurability or lead to required upgrades during underwriting. It’s also important to confirm that the policy accurately reflects the current replacement cost of the building to avoid gaps in coverage.
For owners relying on rent, rental income protection is essential in the event of a covered loss. If portions of the property are unoccupied, watch for vacancy clauses and consider adding coverage specific to vacant units.
Finally, make sure insurance extends to lobbies, hallways, and other shared spaces, and includes ordinance or law coverage to address the cost of code-compliant rebuilding.
Ultimately, proactive communication and thorough documentation are key to managing insurance in commercial real estate. Agents should understand what underwriters look for, especially when dealing with older or unconventional properties. Above all, working closely with insurance professionals ensures your clients receive comprehensive, compliant, and cost-effective coverage that meets both legal and operational needs.
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