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#2224134 - 10/22/19 04:54 PM Flood Policy Question
jwade Offline
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Joined: Oct 2019
Posts: 4
We’ve had a situation where our commercial borrower is purchasing a retail building that’s in a flood zone but according to the Lease Agreement, the Lessee is responsible for carrying the flood insurance. We are trying to determine what options we have. As I see it, the lessee does not have an insurable interest on the building and the borrower does not have an insurable interest in the contents. So do we have the lessee purchase one policy to cover contents which belong to them and a separate policy for the building, naming the building owner/borrower as the insured and the bank as mortgagee? There is discussion among our group of having the borrower purchase a separate policy but that would negate the flood clause in the lease agreement.

Any assistance is appreciated.

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Flood Compliance
#2224143 - 10/22/19 05:51 PM Re: Flood Policy Question jwade
Carolina Blue Offline
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Carolina Blue
Joined: Jul 2005
Posts: 960
Lost in a regulatory fog
I agree. The borrower, owner of the building, has to maintain a policy on the building. As you noted the lessees cannot obtain a policy on something they do not own. The lessees would need to obtain a policy for their own contents, but that would be between your borrower and the lessees and not required by you. May still want to check on that from a credit perspective since if the lessees can't recover after a flood then your borrower may not be able to pay you back.

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#2224146 - 10/22/19 06:24 PM Re: Flood Policy Question jwade
Dan Persfull Online
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
I agree. If your borrower owns the building and you are lending against the building your borrower must provide you a valid flood insurance policy.

There is discussion among our group of having the borrower purchase a separate policy but that would negate the flood clause in the lease agreement.

The lease agreement has no bearing on your regulatory requirement.

Why are you looking at flood insurance on the lessee's contents?
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The opinions expressed are mine and they are not to be taken as legal advice.

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#2224166 - 10/22/19 08:35 PM Re: Flood Policy Question Dan Persfull
jwade Offline
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Joined: Oct 2019
Posts: 4
To clarify, we are not looking for flood on the lessee's contents. I appears perhaps the lessee already has flood on the building and his own contents on the same policy.

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#2224168 - 10/22/19 08:40 PM Re: Flood Policy Question Carolina Blue
jwade Offline
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Joined: Oct 2019
Posts: 4
It was recommended that the lessee purchase the flood on the building, for the building owner, listing the owner as the named insured, but the lessee would pay the premium and not be listed on the policy.

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#2224327 - 10/24/19 04:24 PM Re: Flood Policy Question jwade
jwade Offline
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Joined: Oct 2019
Posts: 4
Thanks everyone!

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#2224392 - 10/25/19 12:20 PM Re: Flood Policy Question jwade
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,223
Galveston, TX
The tenant can purchase the building policy.

2. Building Coverage
Tenants may purchase building coverage if required by the lease agreement,
and the policy must include the building owner as a named insured. However,
tenants may not purchase building coverage if the owner or another party has
purchased NFIP coverage on the same building. Residential condominium
buildings are an exception to this condition.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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