Posted on by Elliot Bartz and Jonathan Senigaglia

How to Properly Insure a Mixed Use Apartment Building

A mixed use apartment building in Chinatown, San Francisco

What is a “mixed use” property?

A building is “mixed-use” if it has businesses on the street level and apartments up above. Really, a mixed use building is any building that serves multiple functions. It might be part office and part retail, or part government building and part cafe, or part residential and part commercial. Walk around any major city – such as San Francisco – and you’ll see these types of buildings everywhere, especially mixed use apartments. Here at Mighty Oak, we specialize in mixed use property insurance.

Another mixed use apartment building in Chinatown, San Francisco

The Challenge of Insuring Such a Building

Mixed use apartments, which generally feature apartments on top and businesses on the street level, are ubiquitous in San Francisco. They also happen to be a real pickle to insure properly. Every occupant of this building needs a different kind of insurance: the business owner needs to insure his business, the residential tenant needs to insure his belongings, and the building owner needs to insure the entire property.

In the event of a disaster like a fire, it is crucial that all three of those areas (business, tenant’s belongings, and the building itself) have policies that will pay out! Often times the business owners, tenants, and landlords aren’t entirely clear on which types of insurance they actually need, or what it means to be “properly covered”. For example, if a building owner insures his building, it is important for the business owner tenant to understand that his business property is likely NOT covered at all.

Often these buildings contain many different tenants and businesses that each have their own unique insurance needs. It is absolutely essential to work with a competent insurance broker who can provide insurance options for the business owners, the tenants, and the landlord. Ideally this broker could also educate the whole crew on which occupants are responsible for which insurance pieces.

This iconic corner in North Beach, San Francisco is full of mixed use apartment buildings.

How to Properly Insure a Mixed Use Building

First, we should consider the building itself. Each building needs to have its own Landlords Policy, which will cover the actual building. As the name of the policy implies, this piece is the landlord’s obligation to purchase (and it is the landlord who gains the protection). If the building is damaged or destroyed, this policy will pay back the owner of the property for repairs. Sometimes when an older building is damaged, the city steps in and demands that the property be brought up to code (such as a mandatory earthquake retrofit). This insurance policy can help cover that cost as well. It will even cover lost income, since the owner may lose some rent payments if tenants have to evacuate during repairs.

This policy is crucial for the owner in other ways. For example, if a visitor slips in the stairwell and decides to sue the property owner, this policy will pay the legal bills and damages. If a tenant decides he’s been wrongfully evicted and chooses to sue, this policy may cover the landlord’s legal fees. In other words, the building is the landlord’s business, so it should be insured in almost all the same ways a business would be insured: protect the property itself, protect the owner’s income, and protect the owner from lawsuits.

A typical mixed use property, with apartments upstairs and a bar downstairs. The owner must insure this entire property, since he owns the whole building.

Now that the building itself is covered, the rest of the building’s inhabitants (both residential tenants and business owners) need their own separate insurance. Take the example below: we see that the red units are residential units and the blue units are retail commercial units.

Each occupied unit needs its own insurance coverage. But wait – haven’t we already insured the building? Why should each tenant have to insure their own unit? Actually the tenants do not need to insure any part of the building itself, but rather their own belongings inside their unit. The Landlord’s Policy will not cover any of the tenant’s belongings, and in the event of a fire, the tenant will not be reimbursed for lost items unless he carries his own separate Renter’s Policy .

A Renter’s Policy is also known as “contents coverage”, or insurance coverage that does not cover the structure itself, but instead the contents of each unit. Every residential tenant can cover his own belongings without having to pay for coverage for the building that he does not own. These policies are designed to protect the tenant in case something like a burst pipe destroys their belongings. A good Renter’s Policy can even cover a tenant’s liability, say if the tenant accidentally starts a fire that destroys the neighboring tenant’s belongings. The combo of a Landlord’s Policy and Renter’s Policy ensures that the building itself and all the stuff inside it are protected from accident or disaster.

What about the businesses on the ground floor? They are also tenants, but they don’t live in their unit. These commercial tenants need policies that cover their:

Business Property – Covers their equipment, tools, and other contents of the commercial unit, in case they need to be replaced after an accident or disaster.

General Liability – Covers the business owner in case a customer gets injured or someone else’s property is damaged during the normal course of business. If someone slips inside the business and decides to sue the business owner, this policy will pay his legal bills.

Workers’ Comp

– If an employee is injured on the job, this policy will pay the medical bills. This type of insurance is legally required for any business that has at least one employee.

Just like the residential tenants, these business owners do not need to cover any part of the building itself, but only their own businesses inside their unit

This is why a mixed use property is the perfect intersection of personal insurance and commercial insurance, all in one property. A good broker can work with the entire building to cover the owner and every tenant in a way that protects everyone without forcing anyone to pay for insurance they don’t need.

Reach out to us for a quote, whether you are a building owner or business owner.

Renter's Insurance

If you are a renter, you are not responsible for insuring the property in which you live (that's the landlord's job). You DO however need to insure your belongings. Your landlord's policy will not cover any of the stuff inside your apartment or rented home, so a Renter's Policy is there to fill in the gap! In the event of extreme weather, burst pipes, theft, fire, vandalism, and other disasters, your Renter's Policy will pay to replace your damaged belongings. These policies can be crafted to cover exactly what you own, including clothing, furniture, jewelry, musical equipment, appliances, and more. Just make sure you work with a good broker to create a detailed inventory of your belongings, so you get a policy that meets your individual needs (your broker can also help you organize receipts and photos of your belongings, so it will be easy to demonstrate to the insurance company what you lost after a disaster).  A Renter's Policy can even pay for injuries and property damage that you accidentally cause, in case someone is injured in your apartment, or if you leave your bathtub running and flood the apartment below yours. Some policies can even cover living expenses, in case a disaster forces you and your family out of your home for a certain period of time. Renter's Policies are generally pretty affordable, especially when bundled with car insurance, so it's usually not a huge hassle to protect your belongings.

Reach out to learn more, or to get a quote today.

Workers Compensation Insurance

If one or more of your employees gets hurt on the job, Workers Compensation Insurance (Workers Comp) can cover the medical bills, and even cover lost wages. As an employer you are required by law to have Workers Comp, even if you only have one employee. This type of insurance is based on a "social contract" between business owners and employees. Employees are entitled to prompt and effective medical treatment for work-related injuries (paid for by a business owner-funded insurance policy), and in return business owners are protected from lawsuits related to those injuries (if there is a Workers Comp policy in place, injured employees generally cannot sue their employer for damages). Without a Workers Comp policy in place, a business owner is legally on the hook for every work-related injury his employees suffer, plus whatever damages might be awarded in the lawsuit that follows. In the case of even a moderately bad accident, this can quickly bankrupt a business and leave the injured employees without income or the money to pay their medical bills. This is why in California failing to have Workers Comp is considered a criminal offense (Section 3700.5 of the California Labor Code), punishable with fines up to $100,000. On the plus side, once you have it in place, you, your employees, and your business are all protected from sky-rocketing medical bills and endless lawsuits. If there is a claim, the insurance company will step in and cover the costs, so the employer can focus on running the business. Workers Comp can even provide death benefits in the event an employee is killed on the job.

Reach out to learn more, or to get a quote today.