Dry Cleaner Lease, Lender and Permit Checklist

A dry cleaner's insurance requirements come mainly from the lease, the lender, equipment financing, any franchise agreement and commercial accounts, not from walk-in customers. Licenses and permits are mostly state and local, with air, hazardous waste and registration items specific to the trade. A bond is not part of every dry cleaner's paperwork, but a city or state can attach one to a particular license, so ask each licensing office. A bond is a surety product you repay if it pays out, not insurance. This guide is for the buyer of a plant, a drop store or a combined store who wants to line the contracts up against the policies before the first renewal.

The short answer

Retail customers rarely ask for certificates of insurance. Landlords, lenders, equipment lessors, franchisors and commercial accounts do, so read those documents against your policies.
The lease deserves the closest read: additional insured wording, waiver of subrogation, who insures the machines and, in a dry cleaner lease, hazardous materials, indemnity and surrender terms.
There is no single national dry cleaner license. Local business licenses, fire and building approvals, air rules, hazardous waste status and state registrations apply in different mixes, and a registration may not move to you automatically, so ask the agency in writing.
Dry cleaning is not tied to a bond everywhere, but a city or state may require a license bond for a specific license or for pickup and delivery. Where one is required, it is a surety product that you repay if it pays out.

Who asks a dry cleaner for proof of insurance?

Mostly the businesses and lenders around you. The table lists the usual requesters, what they commonly ask for and what to confirm. Terms vary by document, so treat the middle column as a pattern to check, not a rule.

Who asks for insurance and what to check
Who	What they commonly ask for	What to check after the sale
Landlord	Landlord as additional insured on general liability, sometimes a waiver of subrogation, tenant insuring its own property, a certificate at each renewal	Exact wording in the lease against your actual endorsements; landlord consent to assignment
Lender on a Small Business Administration (SBA) 7(a) loan	Property insurance on collateral: a lender's loss payable clause on machines and a mortgagee clause on owned real estate	Loss payee wording on the machines; flood coverage if a building sits in a special flood hazard area
Equipment lessor or finance company	Replacement-value coverage with the lessor as loss payee	Whether the lease survives a sale (it usually needs the lessor's consent)
Franchisor, if the store is franchised	Coverages and limits set in the franchise agreement or operations manual	Whether the store is franchised at all, and the franchisor's approval of the transfer
Commercial accounts: hotels, restaurants, salons, medical offices	A certificate with set limits, sometimes primary and noncontributory wording and a waiver of subrogation	The contract itself and how much revenue depends on it
Retail customers	Usually nothing in writing	Garment claims may fall to your garment coverage or to your own funds, depending on the form and the deductible, so keep the claim log

In an SBA-backed 7(a) loan the lender is a bank or other approved lender, not the SBA itself. The SBA rulebook does not set a minimum general liability limit or require the lender to be an additional insured, but lenders can ask for more than SBA's minimums. See SBA lender insurance requirements.

What should I look for in a dry cleaner's lease?

Read the lease alongside the policies, because the same paragraph can ask for coverage and allocate cleanup responsibility. Check these items:

Additional insured status: whether the lease names a specific endorsement or accepts a blanket one. See additional insured endorsements explained.
Waiver of subrogation and primary wording: whether your policies include them, since they often need an endorsement. Check your policy wording.
Who insures what: tenants commonly insure their own machines and fixtures, and may be encouraged or required to carry business income and workers' comp.
Hazardous materials and indemnity: landlords can add environmental terms, such as tenant responsibility for solvent releases, a required pollution policy, limits on perc use and restoration at the end of the lease. Read your lease for hazardous materials, indemnity, insurance and surrender provisions.
Neighbors: a shared wall is the path by which a fire or a leak becomes a claim from the next tenant.
Assignment: in an asset purchase the lease's assignment clause usually decides whether the landlord must consent. Ask deal counsel.

A hypothetical example. A shopping center lease requires additional insured status on a specific endorsement, a waiver of subrogation, a pollution policy naming the landlord and a certificate at every renewal. A certificate issued under the seller's policies cited a blanket endorsement, and the landlord rejects it after the closing and gives the buyer 30 days to cure or treats the gap as a lease default. The questions are what the lease says and what the policies actually contain. The fix usually sits in the buyer's own policies, through endorsements or a new policy, not in a new certificate.

A certificate of insurance (an ACORD 25 for liability, an ACORD 28 for property) summarizes your policies for a landlord, lender or account. It is information only and confers no rights. Additional insured status and a waiver of subrogation come from the policy itself, usually through an endorsement, and a lender's protection comes from the policy's mortgagee or loss payable clause. None of it comes from the certificate, so check your policy wording. See lease insurance requirements for new owners and the certificate for a landlord.

What will the lender and the equipment lessor expect?

In an SBA 7(a) deal, the lender's credit memo must address insurance. SBA requires property insurance on pledged collateral for 7(a) loans over $50,000 under its current rulebook, Standard Operating Procedure (SOP) 50 10 8.1: replacement cost with a mortgagee clause on real estate and replacement cost with a lender's loss payable clause on equipment. For a dry cleaner the machines are often the main hard collateral, so expect the loss payee question to be about them. For properties covered by SBA's environmental indemnification agreement, which names dry cleaners as an example, a borrower that carries environmental insurance must include the lender as a loss payee. Other environmental work, such as a Phase I assessment, is something to settle with your lender.

Machine financing or a distributor lease usually comes with its own insurance clause: the lessor or lender as loss payee and a duty to insure for replacement value. Such a lease generally survives a sale only if the lessor consents. Because the federal perc phase-out is written by machine generation, ask the lender or lessor whether the machine's generation and remaining legal life affect its view. If the store is franchised, the franchise agreement and operations manual set the insurance, and a transfer usually needs the franchisor's approval, often on the franchisor's then-current agreement.

Which licenses, permits and registrations apply to a dry cleaner?

There is no single national dry cleaner license. SBA says most small businesses need a combination of federal and state licenses and permits, that states tend to regulate a broader range of activities than the federal government, and that dry cleaning is among the activities commonly regulated locally. The table lists the kinds that typically come up. Verify each with your city, county and state, because the mix differs by location.

Licenses, permits and registrations that commonly touch a dry cleaner
Item	What it is	What to verify
Business license, zoning, certificate of occupancy	Local approvals for the use of the premises	Current in the right name; whether a change of ownership needs a new filing
Building and fire inspection	Local; plants face fire questions around heat, lint and solvents	Latest inspection and the fire marshal's requirements for this type of plant
Air rules and permits	Federal and state air rules for perc and other solvent equipment, with record keeping requirements	Which rule applies to your machines, and the logs
Hazardous waste status	Used perc and some residues can be hazardous waste (tetrachloroethylene is on the federal spent halogenated solvent list); generator category depends on monthly volume	The generator category, any identification number your state requires and disposal manifests
State dry cleaner registration	Texas requires annual registration with a fee that depends on receipts and a posted number; Florida's cleanup program depends on registration	Current registration and fee receipts; whether your state has one
Wastewater and sewer approval	A local approval for what goes down the drain	Ask the utility whether a discharge approval is needed and in whose name

On air rules, the federal perc rule applies to the owner or operator of each perc facility and requires five years of records. California's rule required perc machines out of service by January 1, 2023 and refers to permit conditions, which points to local air district permits, so confirm with your air district. New York's Part 232 covers perc and alternative solvent equipment. SBA also requires the lender to see evidence of the licenses needed to operate within 90 days after final disbursement. For the general process see licenses, permits and registrations when buying a business.

Do dry cleaners need bonds?

Not everywhere. A city or state can require a license bond for a specific license or for pickup and delivery. Ask each licensing office which license, if any, carries a bond and who holds it after closing. Where a bond is required, it is a surety product, not insurance: the surety expects to be repaid by the principal and its indemnitors if it pays a claim. A sale usually means the bond is re-underwritten or reissued, and the city or state that requires it decides what it accepts, whether a new bond, a rider or a new license. See do surety and license bonds transfer and surety bond versus liability insurance.

What has to be reissued or reconfirmed when the business changes hands?

Work through this list after closing, with deal counsel on anything that reads like a legal question:

Policies. Policy rights generally cannot be transferred without the insurer's written consent, so an asset buyer needs its own policies at closing.
Certificates. Certificates the seller issued describe the seller's policies. Reissue them from yours (see certificates the seller issued).
Lease and equipment leases. Get written consent or a new agreement, and collect the landlord's current insurance requirements.
Registrations. Do not assume a state registration or fund eligibility moves to you. Ask the agency in writing, and see the coverage gaps guide for the detail.
Air and waste records. Confirm the air registration, any hazardous waste identification number your state requires, and safety data sheets, and get the logs.
Commercial accounts. Check each contract's insurance clause against your policies. See checking customer contracts against your policies.

Morrow can line up your lease, lender letter and account contracts against the policies you inherited.

Keep reading

Frequently asked questions

Do I need a special license to run a dry cleaner?

There is no single national dry cleaner license. Expect a local business license, zoning and fire approvals, and air and hazardous waste items, plus a state registration in some states such as Texas. Check with your city, county and state before you rely on the seller's paperwork.

Will the seller's state registration transfer to me?

Do not assume it does. Texas and Florida tie cleanup program benefits to registration, and what happens to a registration at a sale is not obvious from the statutes. Ask the agency in writing and have your attorney confirm.

Does my landlord's lease require a pollution policy?

It can. A dry cleaner lease may include a hazardous materials covenant, an indemnity and a required pollution policy. Read those sections and, if a policy is required, ask whether it must name the landlord and cover the landlord's property.

Does a dry cleaner need a surety bond?

Not everywhere. A city or state may require one for a specific license or for pickup and delivery, so ask each licensing office. A bond is not insurance for you, because the surety expects repayment.

Will my lender require specific insurance on the machines?

For a 7(a) loan over $50,000, SBA generally requires hazard insurance on pledged equipment at full replacement cost (or maximum insurable value) with a lender's loss payable clause, with some exceptions for smaller or Express loans. Lenders may ask for more, so get the exact wording from yours.

References

Just bought a business? Get your insurance reviewed.

Send Morrow the declarations pages, loss runs and key contracts you inherited. Morrow can review them against the business you bought, flag gaps and request quotes where it makes sense. Any new terms depend on carrier underwriting.

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This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.

Dry Cleaner Leases, Lenders, Permits and Bonds After a Sale