Vacant Buildings Pose Risks, Insurance Challenges

Posted on: October 26th, 2022 by Leaders' Choice Staff No Comments

Office and commercial building vacancies have exploded since the COVID-19 pandemic hit, leaving many buildings completely empty of tenants or partially occupied.

According to the website, the average vacancy rate for offices nationwide in the first quarter of 2022 was 12.3%, which is an improvement from 17.4% in the first quarter of 2021.

Unfortunately, when buildings stand vacant they become susceptible to a variety of problems. Vacant properties receive little or no maintenance, attention or security. This can lead to costly problems and loss of insurance coverage.

The dangers

There are roughly 31,000 fires in vacant buildings annually, resulting in dozens of deaths, hundreds of firefighter injuries, and an average $642 million in property damage.

When vacant buildings receive little or no attention or security, it can lead to problems such as:

  • They become a target for vandals. Vacant buildings can wind up with broken windows and graffiti-covered walls.
  • Fixtures and materials inside the building, such as copper piping, may attract thieves.
  • They can become convenient hangouts for young people or shelters for the homeless; they also can become centers of criminal activity, such as drug-dealing.
  • Trespassers smoking on the premises, decayed wiring, arson, and production of illegal drugs like methamphetamines may cause fires in vacant buildings. In addition, automatic sprinkler systems may be shut off, allowing fires to spread, and lack of security prevents early detection.
  • Toxic substances remaining on the premises may leak and contaminate soil and groundwater.

Insurance implications

If a building is actively occupied and someone conducts business there, the risks of vandalism and what insurers term “malicious mischief” against that property are relatively low. But if nothing is going on in the building, then it’s an invitation for vandalism and malicious mischief.

In response, property insurance policies typically state that if a building is vacant or unoccupied for a certain period — typically 30 or 60 days — then the policy won’t cover certain losses, such as damage done to the building by vandalism and malicious mischief. In some cases, the policy may be cancelled if it’s vacant for a certain period of time.

If you are faced with the possibility that one of your properties is going to suddenly be vacant, you should take a look at your property insurance policy to see if it has a vacancy exclusion and if so, what it says. Some levels of vacancy may be acceptable in some policies.

If the building will stay vacant or unoccupied, you should notify the insurance carrier. That notice will probably lead to a repricing of the coverage, but the insurer may also change or cancel the coverage.

For example, if a building is largely vacant, the standard commercial property insurance policy reduces loss payments by 15% for most causes of loss and will not cover some specific losses, such as:

  • Vandalism,
  • Water damage,
  • Fire,
  • Glass breakage, and
  • Theft.

If you have concerns about a vacant property and what your next step should be, feel free to call us.

Protecting your property

Finally, besides revisiting your coverage, you should also take steps to protect the property:

  • Visit the property at least weekly, or hire a property management company to do so.
  • Clear the exterior of the building of scrap wood, paper, cardboard and brush.
  • Remove any toxic substances that could contaminate the area or harm police or firefighters.
  • Maintain sidewalks and parking areas in good condition and clear them of snow and ice.
  • Erect obstacles to keep vehicles and pedestrians out of parking areas.
  • Hire security guards to watch the building at night, and have exterior lighting turned on.
  • Maintain heat or drain the plumbing system to keep pipes from bursting, but keep at least a minimum temperature in areas protected by automatic sprinkler systems.
  • Maintain electricity supply to emergency lighting and exit signs.
  • Shut off utilities, except where necessary to power desired lighting and alarm systems.
  • Maintain fire detection systems and link them to a central station monitoring service.

A vacant building is never a good situation, but with the proper precautions, the owner can maintain its value and keep it secure until new tenants move in.