Landlord as an Insured

Leased to You

While this endorsement wording may vary by edition date, all edition dates since 1985 ² stipulate that coverage applies to "… the premises leased to you…" [emphasis added]. In other words, for the endorsement to afford the landlord the status of an insured on the tenant's CGL policy, the premises must be leased to the named insured tenant.

In the event the landlord tenders a suit to the tenant's CGL insurer seeking coverage as an additional insured, one of the first requests of the landlord by the tenant's CGL insurer may be to produce a copy of the written lease. If no written lease can be produced, the tenant's CGL insurer may deny coverage to the landlord, concluding that without a written lease, the premises are not leased to the tenant.

Landlord-Tenant Relationship

Such a coverage position is based on a narrow reading of what "leased to you" means in the CG 20 11. After all, the wording in the CG 20 11 does not state that a written lease is required. For example, if that were the requirement, the endorsement could have easily stated "… premises in which you have agreed in a written lease agreement …" or similar wording. But it does not so specify.

A broader reading, which seems more consistent with the actual endorsement wording, is to consider the relationship between the named insured and the additional insured. In other words, instead of looking only for a written lease, also look to the facts and circumstances of the matter to see if a landlord-tenant relationship was created.

Possessory Interest

A landlord-tenant relationship exists only if the landlord transfers the right of possession of the leased property. ³ In other words, a landlord-tenant relationship is formed when the landlord conveys an "estate" ⁴ or an interest to the tenant that transfers possession of the premises to the tenant. This interest, a right to possession, is sometimes referred to as a "possessory" interest and means the tenant has exclusive possession and can exclude others from the premises. Exclusive possession is an essential element of leased premises. ⁵

Lease Versus License

So-called "nonpossessory interests," in which the owner has granted only the privilege to use the premises, are not premises leased to another but rather establish a license to use the premises. ⁶ Some examples of arrangements falling short of a landlord-tenant relationship because the right of possession was not transferred include guests in a hotel room, the right to use a parking lot, or the purchase of a reserved seat in a theatre. ⁷

One court described the difference between a lease and a license as follows.

The conceptual distinction between the two turns on possession: a tenant who has a lease is entitled to possession and exclusive occupancy of the premises, while a licensee merely has a contract for use without a transfer in an interest in land.

Source: Benham v. Morton & Furbish Agency, 2007 ME 83, 929 A.2d 471 at 475.

Another court made a similar observation.

A lease divests the owner/lessor of possession and the right to possession and gives the right to possession to the tenant ... A license, on the other hand, conveys no interest in land but is simply an authority or power to use land in some specific way.

Source: Ultracuts, Ltd. v. Wal-Mart Stores, 70 Ark. App. 169, 16 S.W.3d 265 (2000) at 178.

An example of a license agreement is a gift shop in a hotel. The gift shop, located for the convenience of the hotel guests, sold gifts, tobacco, packaged food, reading materials, as well as travel and tour information. In holding that the gift shop was a license arrangement and not a lease, ⁸ the court first contrasted the two.

A license confers a privilege to occupy the land of another, and excuses certain acts done there which ordinarily would amount to a trespass. Since a license confers a personal privilege to act, and not a present possessory estate, it does not run with the land ... By contrast, a lease confers upon the tenant exclusive possession of the subject premises as against all the world, including the owner.

Source: Union Travel Assoc., Inc. v. Int'l Assoc., Inc., 401 A.2d 105 (D.C. 1979).

The court then noted the following regarding the agreement between the hotel and the gift shop.

First, the agreement clearly did not grant appellant an estate in real property. Rather, it conferred upon appellant the limited privilege to occupy a portion of the hotel lobby so as to conduct certain services in connection with the operation of a gift shop.

Second, the agreement did not provide appellant with a specific space in the hotel lobby for the operation of its gift shop.

Third, it is true that the agreement … contains some elements of a leasehold, specifically provisions for payment of rent and term of duration. However, the presence of neither of these elements persuade us that the privilege conferred was a lease … Therefore, the payment of rent in this case does not create an irrevocable property interest, such as a lease.

We hold, as a matter of law, that the written agreement in the instant case, taken as a whole, conferred upon appellant a license….

Source: Union Travel Assoc., Inc.

Additional Insured—Managers or Lessors of Premises (CG 20 11)

This endorsement is a "scheduled" endorsement, meaning that the endorsement requires the insurer to specifically list the designated premises and the name of person(s) or organization(s) as the additional insured on the schedule of the endorsement. Accordingly, unlike the so-called "automatic additional insured endorsements," which afford additional insured status only if "you have agreed in writing in a contract or agreement" to include a person or organization as an additional insured, the coverage is afforded to the person or organization by listing them in the schedule. No underlying contract is necessary for this endorsement to apply.

That a lease "must be in writing in order to comply with the Statute of Frauds" ⁹ is not pertinent to the determination of a landlord-tenant relationship. Stated differently, whether the lease is enforceable by law is not pertinent to a determination as to whether the premises are leased to the named insured—the facts and circumstances of the arrangement control.

This is true even if a lease has expired. The exclusion found in this endorsement for "any 'occurrence' which takes place after you cease to be a tenant in that premises" applies when the insured is no longer a tenant, not when the lease period ends. Thus, if a tenant is occupying the premises as a holdover tenant, despite the cessation of the lease period, the exclusion should not apply, and a landlord will still be entitled to coverage. ¹⁰

Conclusion

Whether a lease exists or is enforceable is simply not the sole determining factor in whether premises are leased to the named insured in the context of Additional Insured—Managers or Lessors of Premises (CG 20 11). Instead, whether a landlord-tenant relationship has been created is the proper inquiry. Stated differently, while a written lease may provide conclusive evidence of a landlord-tenant relationship, the lack of a written lease should not end the analysis. Whether the landlord conveyed a possessory interest to the tenant must also be considered.