The practice of passing an insurance policy deductible to tenants as an operating expense after a claim. When a covered loss occurs and the landlord pays the deductible before insurance kicks in, that cost may be charged to tenants as part of CAM.
Insurance deductibles are the portion of a claim the policyholder must pay before insurance coverage applies. In commercial real estate, landlords may pass deductible costs through to tenants as an operating expense, essentially treating the deductible like any other building cost. The right to pass through deductibles depends on lease language. Some leases explicitly allow it, some prohibit it, and many are silent on the issue. Higher deductibles reduce premiums but shift more risk to tenants when claims occur.
A landlord carries a $50,000 deductible to save on premiums, then passes the full deductible to tenants after a minor water damage claim. Tenants effectively subsidize the landlord's decision to carry a higher deductible, paying both lower-than-market premiums and the deductible when claims arise.
Check whether your lease addresses deductible pass-throughs. If it is silent, negotiate to exclude deductibles from operating expenses, or cap the deductible amount that can be passed through. Also monitor whether the landlord is choosing high deductibles to lower premiums at your expense.
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Find My OverchargesThis page provides general educational information. It is not legal advice and may not reflect the most current law in your state. Consult a licensed attorney for advice specific to your situation.
