Articles

Tenants can keep an eye on things to prevent and contain losses, but issues at vacant properties can go on for some time. As a result, managing and insuring vacant properties requires extra care.

Vacant Properties Are on the Rise

COVID-19 caused an abrupt shift in the workplace, and more than three years later, many workers still haven’t returned to the office and never intend to do so. The rise of remote work has left many office buildings vacant. According to BCG, vacancy rates have increased from 12% to 17%, and utilization has plummeted from 70% to 42%. Many buildings already have utilization rates of 50% or less.

Insuring Vacant Properties

If your property is vacant because it is finished but not yet occupied, in between tenants or undergoing renovations, you’ll need to talk to your insurance advisor about securing the right coverage. Your insurer will likely require vacant property insurance coverage designed for the exposures of vacant buildings.

How long a property can be vacant before special insurance is required depends on the terms of your property insurance policy, and commercial property works differently from residential property. Residential property is typically considered officially vacant if it is vacant for 30 to 60 days, depending on the terms set forth in the policy. Commercial property, on the other hand, is typically considered officially vacant when the occupancy rate drops below 30%, roughly.

If your property is considered vacant under the terms of your insurance policy, a vacancy provision may kick in. Under this provision, your coverage may be reduced, and some types of coverage may be eliminated entirely. For example, a commercial property insurance policy may not cover vandalism, water damage or theft claims for vacant buildings, and coverage for other claims may be reduced by 15%.

The good news is that vacant building coverage is available. By purchasing insurance designed for vacant buildings, you can ensure that your assets are protected and that you’re not paying for coverage you won’t be able to use.

Risk Exposures for Vacant Properties

Whether it’s an office building, a retail store or a residence, vacant buildings have unique risk exposures.

• Water damage and mold may go unchecked. Even if the water is turned off, a leak in the roof could result in water damage. If the issue is not detected immediately, mold may grow, causing more damage to the structure.

• Pests may thrive. No humans occupy the building, but what about rats, termites, and other pests? If no one takes steps to stop them, these creatures may eat away at the structure.

• Vandals and squatters may take over. Vacant buildings can attract people who are looking for shelter or want to cause property damage.

• Arsonists frequently target vacant buildings. Many studies have shown that vacant buildings are frequently targeted by arsonists. In one study, the National Fire Protection Association found that half of vacant building fires were set intentionally, while only 10% of all structure fires are intentional.

Keeping Your Vacant Property Secure

In the ideal world, you’d always have tenants in your properties. In the real world, that’s not always possible. Whether a building is vacant during renovations or because there isn’t enough demand, you need to be proactive about keeping it secure.

• Use lighting to deter vandals, squatters, and arsonists. Consider installing motion-activated lights.

• Invest in security. In addition to a security system, consider hiring a security service to patrol the area.

• Keep up with landscaping. Regular landscaping can make it less obvious that the building is empty while also giving trespassers fewer hiding spots.

• Take steps to prevent leaks. For properties in cold climates, consider adding insulation to prevent leaks caused by freezing. Use smart leak detectors to ensure that leaks are caught before they cause major damage.

• Secure all windows and doors. You don’t want to make it easy for trespassers.

• Have someone check on the property regularly. Look for signs of water damage, mold, pests, squatters, vandals, and any other potential issues. Use a checklist to make sure nothing is missed.

• Don’t neglect maintenance. Maintaining a vacant building might not be your priority, but putting off repairs can lead to higher costs down the road. For example, if you don’t repair a damaged roof, you’re inviting water damage and mold.

• Maintain a fire suppression system. Vacant buildings are especially vulnerable to arson, and they can also be susceptible to accidental fires and lightning strikes.

Do you need help securing coverage for a vacant property? Century Risk Advisors is the one-stop insurance spot for real estate owners and developers. Learn more.