What kind of renovations count as tenant's improvements and betterments?

Q:

What kind of renovations count as tenant's improvements and betterments?

A:

To put it simply, tenant improvements and betterments are all renovations that are paid for by an insured who does not own the building or the unit they are renovating. These are typically done to help facilitate the tenant's business. Anything that an owner puts in would be considered building improvements even if they were done for the benefit of the tenant.

The key point to note is that while they are usually performed together, renovations are not the same as "decorations." Things like putting down an area rug, furniture, cubicles, or portable partitions/screens would not be considered tenant improvements and betterments in an insurance context because they are not fixed. That term is typically reserved for either structural improvements or permanently installed fixtures such as faucets or fire and burglary protection systems.

While both tenant improvements and "decorations" are insured under "equipment," knowing the difference is important. There is a common misconception that once a tenant puts in "tenant's improvements and betterments," the building owner will need to increase their insurance limits in accordance with the increase in building values. However, this is not the case because the owner did not pay for these improvements and, as such, has no insurable interest in them.

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About the Author: (Director of Education at PNC Learning)

Jacques grew up around the insurance industry and began actively participating in 2013. Since then, he has gotten a Level 2 license, won Insurance Council of BC awards in 2015 and 2020 for academic excellence in the insurance licensing courses. He educates insurance professionals through PNC Learning and as a Thought Leader at ReFrame Insurance.

In his day job as an insurance broker, he helps businesses with creative risk management solutions and strategic advice when it comes to insurance.

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