Legal Agreements and Risk Management – Franchising, Leases, Contracts, etc. & Compliance or Non-Compliance

Have you ever really given any thought to that legal agreement you have signed or are about to sign?  Have you thought about the insurance and risk management consequences you have or are about to assume on behalf of your business?

An example is a lease that requires $X Million in Liability Insurance – do you have adequate protection currently?  If you are non-compliant with your Landlord’s lease, what consequences might you face?  I know of an instance, several years ago, where the seller of a business had previously provided me with a copy of his lease; the requirement was for $5M (they were serving alcohol) and, to nobody’s surprise, the cost of the insurance was significantly more than it would be for $1M in Liability coverage.  The buyer of that business refused to purchase the mandated insurance from me – and went elsewhere for less cost because his choice of insurance providers did not request to see a copy of the lease.  What happened?  When the lease was to be renewed, the Landlord did not renew it, having chosen to replace the Tenant with a National Franchisee that provided an insurance policy in compliance with the terms of their lease.  And yes, the tenant was required to vacate, not relocating, thus risking the closure of the business.

What about Contracts?  Have you ever contemplated the consequences of a “Hold Harmless Agreement” or an “Indemnification Clause”?  Are you aware that you may be assuming the risk of a supplier or a customer by agreeing to those terms and driving the cost of your insurance policy higher?  Examples abound here with Property Managers, Contractors, etc.

And we all love Franchises, correct?  Did you know that some firms will require that your policy have coverage that may be difficult to find, on a “stand-alone” insurance policy?  This means that you should investigate what conditions are being required and how easy it might be to purchase a policy on your own as opposed to that of the “Master/Franchise” policy.  What about terms relating to the Financial Strength and Rating of your Insurance Carrier?  That “B” rating that your insurance company carries may not be sufficient to retain your franchise.  Or, what if you have a “protected territory” where your risk could be that you face the introduction of another Franchisee into your region because you were in default of the conditions of your Agreement?

Don’t just assume that what you have is the “norm” and that everyone must sign the agreement.  I have seen Loan Agreements with terms that can be amended, no different than Leases, etc.  The best Risk Management decisions should only be made when discussing your risks and options with an expert in the field.  Don’t assume that your present insurance provider can handle your business adequately and don’t be afraid to ask for a 2nd opinion – from a Risk Management consultant like ourselves.  We are not paid a commission to sell but a fee to offer our professional advice, including to lawyers and accountants who are not trained in insurance issues but their own expertise.

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10 Responses to “Legal Agreements and Risk Management – Franchising, Leases, Contracts, etc. & Compliance or Non-Compliance”

  1. Tammy Bryant Says:

    Your article fell into my hands just when I was thinking about this very subject. I am an owner and Property Manager of 5th Avenue Property Management Company in San Diego, California.

    I’m developing a subsidiary of my Property Management Business which is strictly for tenant placement. It is a grey area concerning my license. The California Department of Real Estate doesn’t have contracts already developed that would give me the type of legal coverage I would like. Close but not quite.

    I would definately like more dialog regarding this subject. Such as; what’s the right amount of coverage and how do you develop the proper legal agreements to protect the company, the client and stay within the DRE’s rules and regulations.

    I don’t want to learn in front of a small claims judge or a board of my peers. Call me crazy.

    • wriskmanager Says:

      Tammy, thanks for the comments.

      I presume that you already have a lawyer handling “5th Avenue Property Management Company” but all lawyers specialize in different aspects of the law. You may have already found that your attorney was great at doing what he/she did for you but is not now qualified to continue in the capacity you’re moving. If that is the case, then you need to begin by researching who may be expert in this new direction.

      As for “the right amount of coverage”, this varies in different jurisdictions but will involve “errors and omissions” (commonly referred to as malpractice) and could be more important than “General Liability” for your needs.

      I don’t think you’re crazy and am pleased to see someone who doesn’t “want to learn in front of a small claims judge”.

      I’ll e-mail you directly and we can then carry on this discussion further by internet or phone.

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  5. Kittie Kay Says:

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  6. Gas Barbecue Grill Says:

    I’m really enjoying the theme/design of your weblog. Do you ever run into any browser compatibility issues? A handful of my blog audience have complained about my blog not operating correctly in Explorer but looks great in Chrome. Do you have any suggestions to help fix this problem?

    • wriskmanager Says:

      Well, considering I use Chrome and don’t really think much of my theme/design (just wish I could think of something really inspiring) I will just say thanks. No idea about Explorer or any other OS. I’m not an IT-geek but understand what I need to know about IT in relation to risk and insurance.

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