What it does
The Leasehold Interest Coverage Form insures the value of a tenant's lease. If a lease favorable to the tenant is cancelled under its terms because the premises suffer direct physical loss from a Covered Cause of Loss, the tenant loses that advantage, and the form pays for it. The "tenant's lease interest" is the difference between the rent the tenant pays and the rental value of the premises. The form can also cover unamortized amounts the tenant paid to obtain or improve the lease, such as a non-refundable bonus.
How it is written
- The coverage details go on the Leasehold Interest Coverage Schedule (CP DS 07), which ISO recommends whenever leasehold coverage is selected.
- ISO publishes leasehold interest factor tables (the CP 60 series) used to calculate the present value of the remaining lease interest.
- The form responds only to cancellation caused by covered property damage. It does not cover ordinary lease expiration or a landlord's decision not to renew.
- The 06 95 edition is the edition reproduced in current reference specimen sets, and forms lists show it as the only edition, for all states.
Who needs it
Retailers, restaurants and professional firms locked into long leases well below current market rent, and tenants that paid a lease-acquisition bonus or significant prepaid rent.
Quoting and selling notes
- Get a copy of the lease and find the casualty cancellation clause. If the landlord cannot cancel after a fire, the exposure may be small.
- Compare current market rent with the lease rent to estimate the monthly lease interest and the remaining term.
- This is not business income coverage. Lost profits during restoration still need CP 00 30.
