Governmental Non-Appropriation Lease Payment Guarantees

Many state and municipal agencies enter real estate leases with the caveat that should their parental government entity cease budget appropriations for lease payments, the agency's lease can be voided at no fault or further liability to that agency.

Insurance coverage is available to guarantee the timely payment of rent/lease payments for the term of the lease in the event of budget non-appropriation by the agencies parent entity. The general structure of the coverage is to provide a substantial level of rent guarantee which is designed to offset the loss of the government lease. Typical transactions involve an owner/developer who is seeking leveraged financing of a single tenant leased asset where that financing is dependent upon the lease income as collateral.  

For a risk to qualify for the insurance, underwriters must be confident that the agency executing the lease and occupying the asset is a "critical" government agency of a highly rated state or municipal government.  

Because there is an element of real estate risk involved to the insurer, underwriters require a significant amount of information with respect to the property, the specific government agency and the proposed loan, prior to offering a preliminary indication of their willingness to underwrite the risk and the pricing.

Items needed to get started for this coverage:

• Description of the building (location, type of occupancy, age, square footage, number of stories)
• Land area
• Current rent or projected rent vs. market rent
• An appraisal, if there is one
• If there is not an appraisal available, any documents or photos showing the building
• Description of agencies (tenants), who are they, what do they do, any information on other tenants in the building (if applicable)
• Complete copy of the lease
• What is the term of the lease and how long do you want coverage
• What amount of insurance do you want
• Structure of proposed financing

This process will take some time. We compile and submit the initial information to underwriters, and they will tell us if the risk appears insurable or not, and provide an indication of cost.  If it is doable, additional qualifying information will be requested in order to provide a bindable quote.