During a build-out, the work you are paying for is frequently insured by nobody.
Three policies are usually in the room and none of them covers it.
The landlord’s property policy covers the building. It does not cover your improvements, and in most leases the improvements become your responsibility from the moment you start.
Your own business policy is written for a business that is operating. It generally does not attach to construction work in progress, and in many cases it has not incepted yet because you have not opened.
The contractor’s general liability covers claims arising from their negligence. It does not pay to replace your materials when they are stolen off the site, and it does not pay for the finished work when a sprinkler line lets go over a weekend.
Builders risk is the policy that covers the work itself, and on a tenant build-out somebody has to buy it deliberately.
Who carries it, and why that question matters
On a tenant improvement project the answer is negotiable and it should be settled before work begins rather than discovered afterward.
Sometimes the general contractor carries it and names you. Sometimes you carry it and name the contractor and the landlord. Which arrangement you have determines who controls the claim, whose deductible applies, and who is holding the money while the work is redone.
Two things to check either way. That the policy names every interested party the lease requires, which usually means the landlord and the management company in addition to you and the contractor. And that the limit reflects the completed value of the work rather than the value at any given moment, because a loss late in the project destroys nearly all of it.
If your contractor says they have it covered, ask to see the policy rather than the certificate. A certificate tells you a policy exists. It does not tell you whether you are on it.
What actually goes wrong on a build-out
Water. Sprinkler work, plumbing modifications, and the unit above yours produce more build-out losses than fire does. Finished millwork and new flooring are unforgiving.
Theft. Copper, fixtures, appliances, HVAC equipment, and anything portable disappears from construction sites, and a space under construction in a mall has a great many people with legitimate reasons to be near it.
Fire from hot work. Welding, soldering, and cutting are common during a build-out and are the reason centers require hot work permits.
Materials off site. Custom millwork at a fabricator’s shop, a case being built to a drawing, equipment awaiting delivery. Ask whether your coverage extends to property in transit and at temporary storage, because on a restaurant or specialty retail build-out a large share of the value spends weeks somewhere other than your unit.
Soft costs are the coverage nobody buys
This is the one worth understanding, because it is where a build-out loss becomes a business problem rather than a construction problem.
Builders risk pays to redo the damaged work. It does not, by default, pay for what the delay costs you: rent that started accruing under the lease, loan interest, architect and permit fees incurred again, marketing spent on an opening date that has moved, and the revenue from a season you have now missed.
Soft costs and delay in completion coverage address those, and they are endorsements rather than automatic inclusions.
For a retailer whose lease clock has started, or who was building toward a holiday season, this is frequently worth more than the physical damage coverage sitting next to it. A three-week delay on a fourth quarter opening is not a three-week problem.
The center will have its own requirements
Managed centers do not let work begin without paperwork, and it is more than your own policy.
Expect the landlord to require builders risk naming them, the general contractor’s general liability with the landlord and management company as additional insured, workers’ compensation for everyone on site, and often evidence that subcontractors carry their own coverage. Larger projects may require a performance or payment bond.
Certificates get verified rather than filed, and a crew turned away at the loading dock costs days you have already committed to. Sort the documentation when the contract is signed, not the week work starts.
Hot work permits, after-hours restrictions, and elevator or corridor access rules are worth reading at the same time, because they affect the schedule your soft costs coverage is protecting.
When the work is done
Two things change at completion and both get missed.
The builders risk policy ends, and the improvements need to move onto your business property coverage as improvements and betterments, at what they actually cost. That transition is a date on a calendar and it is the single easiest gap to create by accident.
And your general liability needs to be in force before you open to the public, which is a different trigger from the one that governed construction.
Worth confirming before work begins
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Who is carrying builders risk, and whether you are named on it
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Whether the limit reflects the completed value of the work
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Whether coverage extends to materials in transit and in temporary storage
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Whether soft costs and delay in completion coverage are included
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Whether every party your lease requires is named
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Whether the contractor’s general liability, workers’ compensation, and subcontractor certificates satisfy the center
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What hot work, access, and after-hours rules apply
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The date the builders risk ends and your property coverage takes over
We write the build-out and what follows it
Prestige Insurance Group places builders risk for tenant improvement projects across Florida, along with the general liability, property, and business income coverage that takes over once the space opens.
Most of the build-out problems we see are not exotic. They are a tenant who assumed the contractor had it, a limit set at the value of the materials rather than the finished work, or a soft costs endorsement nobody offered. All three are cheaper to fix before the first delivery arrives.
Send us the lease, the construction contract, and the contractor’s certificate, and we will tell you what is covered, by whom, and what is missing.
Miami: 305-969-8776 Orlando: 407-993-2331
General information only, not legal advice. Policy forms, lease requirements, and carrier guidelines vary and change over time; refer to your own lease, contract, and policy before relying on any of the above.
