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Securing coverage for vacant buildings

Times are tough for everyone and real estate investors who own commercial buildings are no exception. As the economic downturn now takes aim on the commercial sector, we are seeing a huge increase in the number of vacant buildings lining our streets, office parks and industrial complexes.

The building owner has a number of issues to deal with when a building becomes vacant. Many are obvious such as finding a new tenant, loss of rental income, bank notes coming due, maintenance expense and so on. Not so obvious is the need to address the vacancy provision found in the commercial property policy. Once a building is vacant for an extended period of time, this provision is triggered and the coverage provided by the policy is limited for certain occurrences.

In an effort to maintain coverage that will respond to claims as intended, it is wise to have a vacancy permit endorsed to the policy. If the period of vacancy is known and will be addressed within a few months, many carriers will add the endorsement to the policy without much fuss. When the period of vacancy is unknown with no end in sight, they might ask you to place the coverage elsewhere.

Now the fun begins! Vacant building polices are written on a basic or more limited peril form than the commercial policy typically placed on an occupied building. One of the most commonly excluded perils is theft. Most insurance companies today require a monitored alarm if they are to cover theft and with money tight and no contents to worry about, many owners tend to forgo the expense of installing the alarm. This exclusion coupled with the increase in air conditioning unit theft presents a very real and costly dilemma for the building owner. The insurance companies know AC theft is rampant. They also know vacant buildings are a prime target so make sure you know how the exclusions and/or conditions apply to your building property.

As an example, one of my customers had six AC units stolen from their building in one night with a cost to replace of roughly $14,000. Fortunately, we re-wrote the policy as vacant mid-term last year and fought to include theft coverage. The only expense for the insured was the deductible which was known in advance. No surprises.

If you own a vacant building, take the time to review your current coverage with your agent and make any changes needed to assure no surprises in the event of a loss.

Anthony D. Smith, an insurance agent with Smith-Reed-Osmond LLC in Bradenton, can be reached at (941) 792-3300.