Between the pandemic, the popularity of working from home and the great abandonment, more and more buildings are empty. This not only means that the buildings do not provide income, but they can also pose financial risks as empty buildings are more likely to incur losses due to vandalism, theft, fire and wind damage. An undetected water leak can result in damage of thousands of dollars.
There are also serious insurance consequences for vacant buildings, including reduced or excluded coverage. In this article, you will learn what an empty building is and how to protect yourself from financial risk and loss as an owner of an empty building.
How do insurance companies define vacancy?
The first thing you should understand is that your building can be considered empty according to insurance standards even if it has a few people. Depending on how your policy is written, Standard commercial real estate policies classify a building as empty even if it is less than 31 percent occupied. This means that at least 31 percent of the building must be used by the client, a tenant or a sub-tenant to conduct customary business in order to be considered occupied.
For example, say you own a business in Pennsylvania or Maryland with five offices of equal square footage. If three of these offices are empty and two are rented out, you have an occupancy rate of 40 percent and your office is considered to be occupied for insurance purposes. If another tenant leaves and only one office space out of the five is taken into use, your occupancy rate drops to 20 percent. It is well below the 31 percent occupancy rate used by insurance companies, and your building can be considered empty.
When an insurance company classifies your building as empty, your protection against damage, sprinkler leakage, water damage and theft can be removed if your building remains empty for more than 60 days. If the building suffers an insured damage within 60 days of it becoming vacant, you will not be penalized. However, if the building has been empty for more than 60 consecutive days, the insurer has the right to reduce the amount to be paid to you by up to 15 percent. And depending on how your insurance is written, the insurer may not pay you for any damages.
It is important to note that if you have a building under construction or extensive renovation, it is not considered empty.
Can a building be considered empty at less than 31 percent occupancy?
The answer is yes! You can add an endorsement to your insurance that allows you to keep your insurance coverage, even if only 10 percent of your space is occupied. Another option is to request an endorsement called a vacancy from your insurance company. With a vacant permit approval, you may be able to extend your current coverage to an uninhabited building. Additional premiums and conditions will apply.
The good news is that if you have a building that would be classified as empty by an insurance company, you can reduce your risk and increase your insurance coverage with a vacant building insurance policy.
What is a vacancy building insurance?
A vacant property insurance is designed to protect your uninhabited building from financial risks and losses. Coverage needs may vary depending on the risk exposures, the length of the vacancy, the reason for the vacancy and other factors. Police officers are available with insurance coverage up to $ 5 million dollars and general liability coverage up to $ 1 million. Liability protection is important because it protects you from paying yourself for third party claims for damages, such as someone injuring themselves after tripping over a loose tile in your building.
Do you have a vacant building? We are here to help!
If you have a building that can be considered empty, contact an insurance agent at Keller-Brown Insurance Services today. We will work with you to find solutions such as the recommendations discussed above or vacant building insurance policies to reduce your financial risk and give you peace of mind. As an independent insurance agency serving Pennsylvania and Maryland, we represent several top-ranked insurance companies. We have the flexibility to find the right coverage for you at competitive premiums for companies, homes, cars and more.