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Sandwich Lease Option Insurance - San Diego Real Estate

How to protect yourself with insurance against lawsuits when doing a sandwich lease rent to own transaction.

Sandwich lease definition: A leasing arrangement in which an entity leases property from one party and leases that same property to another party. In this arrangement, the entity is both a lessee and a lessor, so it both pays and collects rent on the same property.

Lessee: Is a person or entity that leases a property from its owner, also called tenant.

Lessor: Is the Landlord (who is either the owner of property or in the case of a Sandwich lease situation is the tenant lessor) who rents the property to another party called a tenant or lessee.

Property Insurance:

As a holder of a sandwich lease you do not have an insurable interest in the property and consequently you cannot get insurance on the property, for that reason you need to make sure of the following:

1- The property owner of the property you leased optioned:

  • Purchases a "Landlord Insurance Policy" that covers:
    • fire 
    • vandalism and 
    • loss of rents
  • You need to be listed as an additional insured

2- Your "Tenant Buyer" needs to purchase a "Renters Insurance Policy"

  • Policy should cover
    • fire insurance to cover tenant buyers personal effects and all the fixtures and personal property inside the property such as wall to wall carpets, appliances etc.
  • You need to be listed as an additional insured

If you can not have an insurable interest in the property why do you need to be listed as additional insured?

When you are listed as an additional insured you will be notified if there is a cancellation or change in the insurance policies. If there is a cancellation or change in the insurance policies you will have to contact the property owner or your tenant buyer to make sure they have their insurance re-instated to cover your non insurable interest.

If there is no insurance or the insurance is not adequate and the property burns down or is vandalized it is likely to take more money than your potential profit to repair and if you do not or can not afford to make the repairs you more than likely will be sued by either the property owner or your tenant buyer.

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