Share, , Google Plus, Pinterest,


Posted in:

What You Should Know About Tenants Improvements and Betterments

Several business owners make upgrades to buildings they rent from a landlord. In Commercial Property Insurance, these upgrades are called tenants improvements and betterments or TIBs.

Part of the Building

Tenants improvements and betterments are paid for by the tenant but become part of the building. Unless a contract states otherwise, the landlord generally obtains ownership of the upgrades once they have been installed. The tenant maintains an insurable interest in the use of the improvements. The tenant’s interest in the property ceases when the lease terminates, and the tenant moves out.

Example of TIBs

Sam owns Sammy’s Sports Factory, a sporting goods shop located in a local strip mall. Sam operates his business out of a retail space he rents from the mall owner, Shopping Mall Inc. Sam has made various improvements to his rental space since Sammy’s Sports Factory moved into it two years ago. These include new carpeting and flooring, built-in shelves, and a small office that Sam constructed in the rear of the store.

The lease between Sam and his landlord states that any improvements Sam makes to the building during the term of the lease become the property of the landlord at the time they are installed. Completed TIBs are to be insured by the landlord. Shopping Mall Inc has insured improvements to the building that are made during the policy period.

Sam knows that any TIBs he installs will become the property of his landlord. However, Sam will have the use of those improvements for the remainder of his lease. Sam could lose his interest in the property if the TIBs are damaged or destroyed by a fire or other peril. Fortunately, Sam can insure his interest in the improvements under a commercial property policy.

Definition of TIBs

Commercial Property policies generally define Tenants Improvements and Betterments as fixtures, alterations, installations or additions to a building you occupy but don’t own. Basically, TIBs are items you have purchased or installed at your expense but cannot legally remove.

Examples of TIBs are the small office, flooring, and built in shelves that Sam installed in his store. This property is now part of the building. Sam doesn’t own it, so he can’t take it with him if he moves to another location. If Sam attempted to remove the property, he could damage the building.

Who’s Responsible for Insurance?

TIBs may be insured by the tenant or the landlord. The lease should clearly state which party is responsible for providing insurance. Otherwise, disputes can arise over whose insurance, the landlord’s or the tenant’s, should apply to losses involving TIBs. The lease should also specify when ownership of TIBs passes from the tenant to the landlord. This often (but not always) occurs when the improvements are installed in the building.

Seek Out Advice from Local Experts and Read Your Lease

Read your lease. If you don’t understand it, reach out to your local commercial real estate and/or commercial insurance agent for help. Understanding your lease and insuring your business properly will hopefully keep potential disputes from occurring in the future.

Written by Craig Davis

Craig Davis is an agent for Farmers Insurance and the owner of Craig Davis Family Insurance located at 27625 Jefferson, Suite 100, in Temecula. He may be reached at (951) 699-1776.

52 posts