What is LRO Insurance?

Lessors Risk Only—or LRO insurance—and general liability insurance are critical in protecting businesses. Understanding the differences between these coverages positions you to make informed decisions about how to protect your commercial property best.

In this article, we explore how LRO insurance protects commercial landlords. John Carroll, commercial lines staff underwriter at Central Insurance, also shares insights on why all commercial building owners and landlords should consider this coverage.

LRO is specialized insurance designed for property owners who lease their buildings to tenants. Typically, LRO combines commercial property and liability coverage, protecting landlords leasing office buildings, retail stores, warehouses, and other commercial properties.

The property coverage portion of LRO insurance shields the physical building from risks like fire, vandalism, theft, and certain natural disasters. Property coverage ensures landlords can repair or rebuild a damaged building after a loss.

The liability portion of LRO insurance protects commercial landlords from legal liability, including medical costs, if a tenant or visitor suffers an injury on their property due to negligence. Slips and falls are a common claim against building owners. For example, a shopping center owner neglecting to fill a parking lot pothole would be responsible if a visitor is injured stepping into it. Similarly, injuries resulting from failure to remove snow and ice on walkways can lead to claims against the lessor.

“Negligence determines liability,” Carroll explains. “A claim relating to building or parking lot maintenance typically falls on the property owner. In contrast, if a shop owner renting the space creates a tripping hazard by leaving products or boxes in a walkway, liability would likely fall on the shop owner.”

How Much LRO Coverage Do I Need?

Renter operations significantly influence the amount of LRO insurance coverage needed to protect a property. Different types of businesses carry varying levels of risk.

For example, leasing property to a bar presents higher risks than renting office space or a retail store. Restaurants and bars typically have greater exposure to fire hazards due to cooking equipment and increased liability risks from customer injuries. Property owners leasing space to higher-risk businesses require more comprehensive LRO insurance coverage to guard against elevated risks. Even in lower-risk scenarios, LRO insurance protects against accidents or property damage caused by tenant activities, vandalism, or natural disasters.

Did You Know? According to the National Restaurant Association, restaurant fires account for 6% of all nonresidential building fires reported to fire departments each year and cause more than $100 million in property damage.

“We look closely at exposure and building usage when considering who’s a good fit for LRO insurance,” Carroll says. “An office typically doesn’t have many people coming and going compared to a retail shopping center with high foot traffic. We also consider the nature of the business. Fireworks factories, chemical manufacturing, and other hazardous industries typically are not a good fit for LRO simply because the risk is too high.”

Ultimately, the nature of renter operations dictates the risk level and recommended amount of LRO insurance coverage. Property owners should assess and understand their tenants’ businesses to protect their property.

The Central Difference

LRO coverage is essential for all commercial landlords. It’s important to review and update your LRO policies as tenants change. Central’s team of specialized commercial insurance experts can assess your commercial property and risks to determine the level of LRO insurance you need. In addition to proper coverage, our experienced Loss Control team can provide insights on reducing risk, preventing accidents, and protecting your investment from costly claims.

Ready to get started? Find an agent to learn more about Central’s LRO and additional commercial property coverages.