After more than six years, it’s still a seller’s market, values continue climbing, and property owners, whether they’re holding residential, office or industrial space, are seeing their properties snapped up in days, sometimes hours.
All of that can change when the economy slows, of course. And even in a hot real estate market, vacant space can still be found, sometimes on the market, sometimes not, its owners just waiting for capital to flow in or because they’re too busy with other ventures to pay attention to their investment just yet.
So if a house, or apartment building or office space are not occupied, and there’s no business being conducted in the place, you don’t need insurance, right?
Why? Because vandals, sometimes hunting for copper, break into abandoned buildings and can wreak havoc. Because of lightning strikes that spark devastating fires. Because of winds that blow so hard, they can tear off a roof. Because of arsonists. Because a little, old lady (or even a young child) tripped and fell and broke their foot on a cracked sidewalk right in front of your premises.
An empty building, in other words, does not make your liability go away.
According to the National Fire Protection Association, there are an estimated 25,000 structure fires in vacant buildings per year in the U.S., resulting in $750 million in direct property damage per year.
So, what’s a property owner to do? Well, first know this:
If a building is 70% vacant for longer than 60 days, it is likely to lose some of its coverage. Standard business policies will cut their loss payments by 15% for fire or wind claims. Depending on the policy and the insurance company, no coverage at all may exist for vandalism, sprinkler leakage, water damage or theft.
So, if you’re the owner of a building, have lost a tenant and don’t expect to find a new one for a while, make sure to get ahold of your insurance broker and ask them for a “vacancy permit.” A permit will lower the minimum occupancy requirements in your policy while you’re between tenants or are looking to sell. But be sure to do this, because insurance carriers will deny claims if your building became vacant and you neglected to notify them.
If you’ve just invested in a building and are planning a period of vacancy, then you’ll want to talk to your broker about a Vacant Property insurance policy.
These policies typically offer “named peril” coverage for such things as fire, wind, hail and other perils that are specifically named in the policy.
Depending on the insurer, a Vacant Property policy can also include vandalism and malicious mischief coverage.
Also, a Vacant Property policy can be written on 3- or 6-month terms, rather than the traditional 12-month periods.
While the real estate market is expected to remain stable over the next year or longer, occupancy rates will no doubt fall when the economy eventually slows. A Vacant Property policy to protect your investment when the slowdown arrives will mean one less thing to worry about.
George Whitten is an Insurance Advisor at CCIG. Reach him at George.Whitten@thinkccig.com or at 720-330-7940.
CCIG is a Denver-area insurance brokerage with the full-service capabilities of a national brokerage. We do more than make sure you have the right policy. We also help you manage your long-term cost of risk with our risk and claims management expertise and a commitment to service excellence.