By Stuart A Heller

You may see a provision in your lease calling for a “waiver of subordination.” Such a provision is used to assure that if there is loss or damage covered by the insurance that either party carries, then to the extent possible both parties will look to the proceeds of that insurance to pay their respective claims. This is done in lieu of having one party’s insurance company pay the claim and then, if the other party was possibly at fault, risking a suit by the insurance carrier against the other party to be reimbursed. It can also avoid a lawsuit between the parties to recover their losses. Such an arrangement requires the prior agreement of each party’s insurance carrier, obtained usually when the insurance is purchased. My clients tell me this approval is frequently granted and without any increase in their insurance premium.

This type of provision has nothing to do with a subordination clause, something which I discussed in an earlier issue of Legal Tips.  That clause is used to allow a landlord to control the priority of interests in its property. It assures the landlord that it can give his lender or a subsequent purchaser at a foreclosure sale an interest senior to (of higher priority than) that of the tenant, and thus be able to use the property as collateral for a loan. 

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