To put it simply, tenant improvements and betterments are all renovations that are paid for by an insured who does not own the premises . These are typically done to help facilitate the tenant’s business. Any permanent fixtures that an owner puts in would be considered part of the building even if they were done for the benefit of the tenant. As a result, any losses in that area would be assessed against the building limit.
Things like area rugs, furniture, cubicles, or portable partitions/screens would not be considered tenant improvements and betterments (even though they fall under the Equipment Limit) because they are not fixed. Structural improvements or permanently installed fixtures such as faucets or fire and burglary protection systems would be considered tenant improvements only if they were paid for by the tenant.
There is a common misconception that once a tenant upgrades the premises with “tenant’s improvements and betterments,” the building owner will need to increase their insurance limits in accordance with the increase in building values. However, this is not the case because the owner did not pay for these improvements and, as such, has no insurable interest in them.
This article was originally written for Insuranceopedia