Lessors Risk Insurance for Retail Property in San Diego, California

What a San Diego retail property is outside its walls

Retail in this city is approached across ground the owner keeps rather than through a door on a public walk. The runs that carry it — Convoy Street through Kearny Mesa, Miramar Road, Garnet Avenue out at the beach, the long commercial stretches of El Cajon Boulevard and University Avenue, the newer centers strung along the arterials at Rancho Bernardo and Scripps Ranch — were laid out around parking, and a customer reaches almost every tenant in them by crossing a lot, stepping a curb, walking a covered arcade or climbing a short flight from one pad to the next. A climate that never drives trade indoors keeps them out there as well: seating, queues, displays and deliveries all happen on ground the lease leaves with the owner. So the surface most likely to injure somebody at a San Diego retail property is not the tenant’s sales floor. It is the site.

Topography then complicates the site far more than it complicates the shell. This is a city of mesas cut by canyons, and a commercial parcel on one of those arterials frequently steps: parking held at more than one elevation and tied together by ramps and short stair runs, a lot falling away at the rear where the ground drops into a finger canyon, a retaining wall carrying one pad above the next. Those are the owner’s structures. They are not the building an underwriter is pricing and not the plain land a lease describes as common area, and in an ordinary week they are where somebody misjudges a step in poor light with a bag in each hand. When a retail claim in this city is about an injured person rather than a damaged building, it very often happened on a change of grade.

Because the trade spills outside, a great deal of what stands on that ground was put there by tenants. Shade structures, heaters, raised platforms, planters and rails go up during a fit-out, get bolted to the owner’s building or set in the owner’s lot, and then stay for the next tenancy and the one after it. Near the water — Newport Avenue, the blocks off Garnet, the older La Jolla business streets — the steel holding all of that sits in salt air that works on fasteners and anchorage without pause. Two separate problems come out of that and owners tend to see only the first. On the property side it is deterioration, which is the opposite of the sudden event a property form is built to answer. On the liability side, when a corroded anchor finally lets go it lets go above a customer, and the questions then are who owned the structure, who was meant to look at it, and whether anything written down says so.

The older storefront rows are a separate case, and they matter more than their share of the inventory suggests. San Diego’s hazard planning record treats the older masonry it worries about as mainly nonresidential, which in practice means leased commercial property: the low blocks of shops downtown and through Hillcrest, North Park and the La Jolla business district, carrying a parapet and a sign band directly above a public walk. An owner holding one of those is in an unusual evidentiary position, because the statewide attention that put older masonry onto rosters elsewhere in California passed over this city before it was moved into the tougher classification. Further north, a file on the wall assembly usually exists somewhere. Here it usually does not, and its absence tends to surface the first time a market asks what the walls actually are.

Who answers for the ground the lease calls common

Most multi-tenant retail on these corridors runs on a net structure, and the reading owners take from it is that the tenants have bought the site’s upkeep. What they have bought is the cost of it. A common-area clause moves reimbursement, sets a standard and allocates a share; it does not move the duty that follows control of the ground, and it does not stop a claimant naming the party on title. The order of events runs opposite to the logic of the lease: the injured customer sues the owner, the owner’s own liability policy defends, and any argument about recovery from a tenant or their insurer runs months behind that with money already spent. On a single-tenant pad the argument is at least between two parties. In a center where one lot serves everybody, no tenant controls the surface at all, and the owner is the only candidate left standing on it.

The roster on these corridors is also less standard than the shells suggest. Convoy Street packed a dense run of kitchens into buildings put up for entirely different trades, and the industrial-flex bays through Miramar and Kearny Mesa have been filling with tasting rooms, gyms, climbing walls and studios — uses that gather a crowd inside a shell designed around storage and a roll-up door. An underwriter reads a rent roll as a description of what actually happens in the building, so a list of trade names tells them less than a line each on what the tenant does: whether anyone cooks, what the cooking equipment vents into, whether the public assembles, whether alcohol is served, and when the lot is busiest. The version that catches owners out is a change of use arriving through a routine assignment clause, because nothing about it required a conversation with anyone insuring the building.

Where those uses sit side by side under one roof, the exposure stops being tenant by tenant. A retail row is usually one continuous structure with a shared roof and, in the older ones, a common attic space, so a fire starting in a single bay is a claim about the whole building — and the fit-out in the bays either side of it may or may not be yours to insure, depending on an improvements clause that leases in the same row often handle inconsistently unit to unit. The lot repeats the pattern: a shared trash enclosure taking a kitchen’s grease waste is a fire load nobody’s lease describes and everybody’s placement touches. Working out which improvements became the building’s, and what they are worth, is a job for a season when the units are trading.

The last piece is what stops the trade without touching the building. These corridors run out to where the mesas meet brush, and a center at Rancho Bernardo, Scripps Ranch or along the eastern edges can spend days inside a closed area with nothing whatever wrong with it. Tenants read their lease first and ask for abatement; the owner reads a property policy that answers income lost because physical damage made the space unusable. Many forms carry a narrow extension for access barred by an order of a civil authority, and its conditions are tighter than the picture most owners have of it. So this is a lease question before it is an insurance one — what abates, on what trigger and for how long — and it repays a reading before a season when the wind turns rather than during one.

The other reader of an empty storefront

San Diego’s abandoned-property rules reach a commercial building that has stopped being used, which is an odd thing to sit inside on a retail row, because a row can be three-quarters trading and still hold one unit the City has formed a view about. The trigger is not a calendar an owner can count down. It is a determination reached at the City about the property, so the first an owner hears of the matter may be a notice rather than a deadline they were already watching — and the securing work that can follow — plywood across the glass of a frontage whose whole point is to be seen into — happens in full view of every prospective tenant on the block. Answering to nobody at the City, and running on its own footing, is the language that settles whether a claim on that same unit gets argued as a vacancy question: in this state that language was legislated rather than drafted by anyone underwriting your building, which is why it repays reading in a quiet quarter instead of a bad one.

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Where to go next

• How retail property risk works generally
• Everything local to San Diego
• What California law says
• Mixed Use Property in San Diego
• Office Property in San Diego

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The lines that answer this exposure

Nothing about a San Diego retail placement begins at the shop door; it begins out on the paving, the ramps and the shared lot, and the coverage follows from there:

• Business Income & Loss of Rents
• Commercial Property
• General Liability
• Commercial Umbrella
• Tenant Discrimination