3 Risk Transfer Tools and What You Need to Know About Them (BOMA 2025)

Bad things will happen to buildings and the people who manage them—for many reasons. Are you prepared when these bad things happen?

“It’s more than paying your insurance premiums and more than getting your certificates,” explained Geoff Wardle, BOMA Fellow and partner at Clark Wardle LLP. “You have to have a plan because things are going to happen, and we’re going to be lucky to get out of it—not alive, but annoyed. Things are going to happen.”

Why Do Bad Things Happen to Buildings?

Incidents can happen for many reasons, Wardle said, including:

• Defective design and materials
• Bad operation and maintenance
• Managerial hubris
• Intentional acts
• Negligent acts
• Simple bad luck

Putting risk transfer tools in place, such as force majeure clauses, insurance, and tools of exculpation, helps property professionals hope for the best, but prepare for the worst.

Force Majeure

This term is in every one of your leases, but do you know what it means? Colloquially, it’s referred to as “acts of God” and it provides release from the “time is of the essence” obligations in your lease.

“Force majeure is important because it’s a negotiated contract clause. It’s not a clause that’s a common law provision. It’s not a clause that is implied,” Wardle said. “You are accountable, and you get the relief for what you negotiated.”

There are three key things to remember about force majeure clauses, Wardle added:

• You have to have an identified occurrence to trigger it.
• The occurrence has to be outside the control of the parties in the lease. “We don’t want to say ‘If your place catches fire for any reason, you don’t have to pay rent,’ because what will tenants do? Start a fire,” Wardle explained.
• The force majeure clause is triggered after notice and action.

Force majeure excuses the delay, but not the ultimate performance—and it generally doesn’t excuse monetary obligations, Wardle explained. “If you have to pay somebody, your financial performance is not going to be excused—it’s not even going to be delayed,” he said. “Rent is an independent covenant.”

Insurance

“Insurance is nothing more than a contract where a third party will pay you when you have a loss under certain circumstances,” Wardle said. “You have to pay a premium. You’re going to have to file a proof of claim. You’re going to have to comply with contractual provisions, and it’s going to be subject to state regulation.”

The nature of state regulation can make portfolio management tricky, Wardle added. Insurance policies are relatively the same, but can differ in some important respects. Large portfolios may have coverages for buildings in one state that aren’t available in another state.

Types of insurance you’re likely to run into in property management include:

• Commercial general liability: This covers personal injuries on your property. You can also add other coverages on top of it for things like cyber attacks and other potential issues. The landlord will carry this for common areas and the building generally, and your tenants will have their own policies for their leased premises and their employees.
• Property and casualty coverage: This is coverage for damage to the building. Landlords will cover it in a multi-tenant building, but in a single-tenant building, the tenant would typically cover it—and who pays for it depends on the lease.
• Property insurance: This covers the tenant’s furniture, fixtures, and equipment (FF&E).
• Business interruption: Carried by the tenant, this type of insurance covers the tenant in the event of loss of business income or some other action that arises from another loss.
• Worker’s compensation: This covers injury to employees.
• Employer’s liability: This covers accidents and injuries to employees in situations where worker’s compensation doesn’t come into play.
• Automobile coverage: Covers vehicles used in the tenant’s business.

Having a good relationship with your insurance broker is highly important, Wardle said. You can ask them questions and sometimes they can even review your leases and contracts.

You’ll also want to make sure both the landlord and tenant coverages are what the lease requires, and you’ll need to develop some strategies in case coverage changes over time—for example, wildfire damage in the West may mean that property coverage has changed for buildings in that region.

Other best practices include:

• Keep lease insurance requirements consistent throughout your building. This is one reason why you need to review certificates of insurance, Wardle said. “We found out we have a tenant that’s not carrying a coverage we require, and if we have a catastrophic loss in a building, we want the insurers to be aligned with what their obligations are,” Wardle said. “Otherwise they’ll fight amongst themselves.”
• Don’t mix risks. “Do not put a highly flammable tenant next to a tenant who makes flames, because what will happen?” Wardle asked. “You’re going to lose everything.”
• Keep coverage consistent throughout your portfolio—at least as much as you can, if your portfolio is in multiple states.
• Regularly evaluate risks and losses. “You need to be aware of near misses,” Wardle said. “Your near misses may become losses. You may have a catastrophic loss once, but you have all these near misses, so you should have known, evaluated, and identified what you can do.”

Other Exculpation Tools: Indemnification, Waiver, and Release

These tools generally come into play if there’s an injury to a party or third party and there’s no insurance (or inadequate insurance) involved. There’s also an agreement to either:

• Pay the loss (indemnification)
• Voluntarily surrender a right (waiver)
• Not pursue a specific claim (release)

Exculpation tools have to be negotiated, Wardle added. “We have to be able to articulate what the scope of it is, because courts are not going to imply it,” he said. “You’ve got to write them carefully and read and understand them.”

Develop a Risk Management Culture

“The biggest lesson I can share with you from the West: ride your fences,” said Wardle. “Riding your fences means you’re going out every day and making sure your property’s good. Instill that culture with your people. See something, say something.”

Insurance won’t cover every loss you could suffer, Wardle added, but a risk management culture can help you avoid incurring many of them in the first place. “You can only manage risk,” Wardle added. “You can’t stop it.”