Insurance Tips Every Building Owner Should Know

Insurance Tips Every Building Owner Should Know

Doug Richardson Commercial Real Estate Agent OfficeUnderstanding & Avoiding the Vacancy Clause in Commercial Property Insurance

For those of us fortunate (in most cases) enough to own assets in the form of commercial real estate, we soon discover that the operation and management of those properties is not always as easy and clear cut as it might appear from the outside looking in.  One of many examples of this premise is the need for insurance, and one of the many vagaries of commercial real estate insurance is the often little understood vacancy clause in your insurance policy.
When property is vacant, it is subject to a greater chance of vandalism, undiscovered damage or increased severity of loss.  Because of this, insurance carriers rely upon vacancy clauses in their insurance policies to avoid coverage for unintended risk due to damage to the property that is vacant or that has become vacant after the policy has been issued.
Commercial property with empty units can lead to the application of the vacancy clause.  For most commercial property forms, if the insured is the building owner, the building is “vacant” unless at least 31% of its total area is either leased and used to conduct customary operations, or it is used by the building owner to conduct their operations.
If a loss occurs and the structure is deemed to be “vacant”, certain types of coverage are completely eliminated during vacancy, and others are reduced.  Many policies will reduce the percentage of covered loss after your deductible is applied as well.  As you can well imagine, that could be a nasty surprise when you turn to your friendly insurance broker for assistance.
Vacancy permission endorsements or the purchase of a policy which provides coverage for vacant property are two of the options available to owners of vacant property to protect their asset.
All of the above can vary either by your insurance carrier or the property policy form that is used for your property insurance.  Also, insurance carriers can define “vacant” and “unoccupied” differently, so it is important that you seek the advice of your insurance broker.  Or, you can just work with Tucson Realty & Trust Company, and we will work as hard as we can to keep that property from ever attaining that dreaded “vacant” status.

by Doug Richardson

 

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