A franchisee is three weeks from signing a lease for a smoothie and bubble tea store in a regional mall in Wellington. The franchisor has approved the location, the build-out contractor is lined up, and the mall’s leasing office has sent over an insurance exhibit that runs four pages. It asks for specific liability limits, an umbrella, a long list of additional insureds, coverage on the improvements she is paying for, a year of business income and a certificate before the contractor can start work. She expected a simple policy for a small drink shop and is now trying to figure out what half of it means.
Franchise beverage and dessert concepts are some of the best-run small businesses in Florida’s malls: bubble tea, smoothies and juice, frozen yogurt, gelato, crêpes, coffee kiosks and cookie shops. They have no fryers, no alcohol and a proven system behind them, and most qualify for a business owner’s policy with an admitted carrier. What makes them different from a street-front café is the lease. National mall owners write detailed insurance requirements, franchisors add their own, and the policy has to satisfy both.
What the Mall Lease Usually Requires
Large mall owners such as Simon, Brookfield and the other national landlords use standard lease forms with an insurance section that tenants rarely negotiate. The details vary by mall, but the same requirements show up again and again: general liability at a stated limit per occurrence, often $1 million or $2 million, an umbrella or excess policy above it, the landlord, its managing agent and often its lender named as additional insureds, coverage that is primary and noncontributory with the landlord’s own insurance, a waiver of subrogation, and a minimum financial rating for the carrier. Many leases also require advance notice to the landlord if the policy is cancelled.
The wording matters as much as the limits. Some leases require the additional insured coverage to include completed operations or to use specific endorsement forms, and some list several related entities by name. A policy with a generic blanket additional insured endorsement may or may not satisfy the lease, and the leasing office will reject a certificate that does not match. Send the full insurance exhibit to your agent before you sign, not after, so the quote is built to it. Our articles on what your contract requires from your insurance and insurance for independent retailers in Florida malls and shopping centers explain these terms in more detail.
The Franchisor Is in the Contract Too
Franchise agreements carry their own insurance requirements, and they usually ask for the franchisor to be named as an additional insured as well, sometimes with minimum limits that are higher than the lease. Some franchise systems require specific coverages, such as employment practices liability or cyber, or require that certificates be uploaded to a compliance platform at every renewal. Read the insurance section of the franchise agreement alongside the lease, because the policy has to meet whichever requirement is stricter on each point.
Your Space, Not the Building
In an enclosed mall, the landlord insures the building. The tenant insures what is inside the space and what the tenant paid to put there. That means business personal property, such as blenders, sealing machines, ice machines, freezers, display cases, furniture, the point-of-sale system and inventory, and tenant improvements and betterments, such as the counters, millwork, lighting, flooring and plumbing installed for the store. Franchise build-outs are expensive, and the improvements are often the largest number on the property side of the policy.
The lease decides who is responsible for those improvements after a loss, so read it carefully. Many mall leases make the tenant responsible for restoring its own improvements even when the landlord’s building insurance responds to the structure, and the lease may require that the improvements be insured at full replacement cost. A business owner’s policy is designed for exactly this kind of tenant, and our guide to business owners insurance explains how it combines property and liability.
When the Mall Closes and Your Store Does Not Burn
The business income question that catches mall tenants off guard is what happens when the store is fine but customers cannot get to it. A fire in the anchor store, a roof failure over the food court, a power outage or a hurricane that closes the whole mall can shut down a tenant for days or weeks without any damage to its own space. Standard business income coverage pays only when there is direct damage to your property, so look for civil authority coverage, coverage for loss of access to the premises and dependent property coverage, and check the waiting period and the time limit on each. Many leases require at least twelve months of business income. Our page on business interruption insurance covers how the coverage is calculated.
Refrigeration deserves a line of its own. Frozen yogurt, gelato and smoothie concepts depend on freezers and refrigerated inventory, and a compressor failure or a mall-wide power outage can ruin the stock overnight. Equipment breakdown and spoilage coverage close that gap, and most business owner’s policies can add both.
Liability Behind the Counter
The claims a beverage or dessert tenant actually sees are familiar ones. Spilled drinks, melted ice cream and dropped toppings make floors slick, and a customer who falls in front of the counter will usually name both the tenant and the mall. Hot drinks and hot water cause burns. Tapioca pearls, popping boba, nuts and small toppings are choking hazards, especially for children. Allergens are everywhere in these menus, including dairy, nuts, soy, eggs and gluten, and a customer who asks whether a drink is dairy-free and gets the wrong answer can have a serious reaction. General liability with products and completed operations coverage responds to these claims, and a trained staff, allergen information at the counter and clear warnings on choking-hazard items keep them from happening. Our articles on coffee shop insurance and ice cream shop insurance go deeper into the counter-service exposures.
Kiosks and carts in the common area raise their own questions, because the tenant is operating in space the landlord controls and customers walk around it on all sides. A kiosk license agreement usually carries the same insurance requirements as a full lease, sometimes on shorter notice.
The Umbrella
Mall leases often require an umbrella or excess liability policy of $1 million to $5 million above the general liability, and some franchise agreements require one as well. For a beverage tenant, an umbrella is usually inexpensive compared with the rest of the program, and it also sits above employers liability and any auto coverage. Our article on umbrella insurance versus excess liability explains the difference between the two.
Employees, Delivery and the Register
Beverage and dessert stores run on part-time staff, many of them students, and Florida requires workers’ compensation for non-construction businesses with four or more employees, counting part-time workers. A new store usually crosses that line before opening day. Restaurants and counter-service food businesses in Florida are rated under the restaurant class, and our article on workers’ compensation for Florida restaurants explains how it works; for stores with constant turnover, pay-as-you-go workers’ comp keeps the audit from becoming a surprise.
Third-party delivery apps use their own drivers, but if your staff ever delivers catering orders in their own cars, hired and non-owned auto coverage is needed. Card payments and loyalty apps put customer data in your systems, which is a cyber exposure, and many franchise systems now require cyber liability coverage. Cash handling and employee theft call for crime coverage.
Before the Keys and Before Opening Day
Most malls want a certificate of insurance before the tenant’s contractor can begin the build-out, which means the policy has to be bound weeks before the store opens and before there are any sales. Carriers can write a new franchise location on projected sales and payroll, and the policy is adjusted at audit. Start the insurance conversation when the lease is in draft, give your agent the lease exhibit and the franchise requirements together, and make sure your general contractor carries its own liability and workers’ compensation and names you and the landlord on its certificate. Our article on shopping centers with restaurant tenants explains what landlords look for from the other side of the table.
What Franchise Mall Tenants Should Confirm
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Does the policy match every requirement in the lease’s insurance exhibit, including the exact additional insured wording?
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Are the franchisor’s insurance requirements met as well, including any higher limits?
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Are your tenant improvements insured at replacement cost, and does the lease make you responsible for restoring them?
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Does business income include civil authority, loss of access and dependent property coverage for a mall closure?
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Do you have equipment breakdown and spoilage coverage for freezers and refrigeration?
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Is the umbrella at the limit the lease and franchise agreement require?
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Will workers’ compensation be in place before you hire your fourth employee?
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Does your build-out contractor carry its own insurance and name you and the landlord on its certificate?
Franchise Mall Tenant Insurance With Prestige
Prestige Insurance Group insures franchise and independent beverage, dessert and counter-service food tenants in malls and shopping centers throughout Florida, from Aventura, Dadeland and Sawgrass Mills to Coral Springs, Boca Raton, Wellington and Orlando. We work with over 100 MGAs and specialty markets, including admitted carriers that write business owner’s policies built for mall tenants. Send us the insurance section of your lease and your franchise agreement, and we will match the program to them before you sign. For more, see our guide to restaurant insurance in Florida. Call the office nearest you. Se habla español.
Miami: 305-969-8776 Orlando: 407-993-2331
General information only, not legal advice. Lease and franchise insurance requirements vary by landlord, mall and franchise system, and policy forms, endorsements and carrier appetite change over time. Review your lease and franchise agreement with your attorney and refer to your policy for the terms that apply to your business.
