Vacant Commercial Property Insurance Explained: How to Protect Idle Real Estate Investments

Commercial property owners have to deal with vacant commercial properties on occasion. This is a normal part of owning property. But you can’t assume your commercial property insurance will cover the property while it’s vacant. Most policies have an exclusion of coverage if the property is vacant for more than a given period of time, often 30 to 60 days. When this is the case, you need to have vacant commercial property insurance to cover the building and any contents you might have within it. 

Introduction to Vacant Commercial Property Insurance

Vacant commercial property insurance, as the name suggests, protects commercial properties while they are unoccupied or vacant. There is a specialty insurance for these properties as insurance companies will specifically underwrite them due to the increase in vandalism and squatting that can happen to vacant properties. Simply put, these properties are at a higher risk of loss than a vacant property since there are no tenant eyes on the property to regularly maintain it and upkeep the property. 

Properties may be vacant when a building is being built or renovated, or just in between tenants. It is important to note the time the commercial property is vacant to determine what type of insurance is needed to properly protect it. 

Risks Associated with Vacant Commercial Properties

Vacant properties are at a higher risk of loss, including the following:

1. Vandalism and theft: Unattended buildings become targets for vandalism and theft. 
2. Fire hazards: More things can go wrong when no one is in the building, including fire hazards.
3. Weather-related damage: While certain weather events may need a specialized policy, unattended buildings are at higher risk of loss. 
4. Liability issues: Trespassers may get hurt while on the property, leading to lawsuits.

Understanding Vacant Property Insurance Coverage

A commercial property owner may get one of two types of policies with different levels of coverage that include basic coverage and comprehensive coverage. The basic policy covers common perils such as vandalism, fire, lightning, and hail. A comprehensive policy goes beyond the basic policy and offers coverage for theft, water damage from leaks, and some natural disasters. 

Common exclusions of vacant property insurance include most natural disasters, such as hurricanes and floods. These perils must be covered by a separate policy. It is important to note that a claim can be denied if it fails to meet the vacancy clause requirements or if there is insufficient coverage.

How to Secure Vacant Commercial Property Insurance

Take a look at the steps of securing vacant commercial property insurance: 

1. Assess the property’s condition: Make sure the property is in good condition when insuring it and that there is no unrepaired damage. 
2. Contact specialized insurers: Work with a company that insures vacant properties and understands the risks posed to them. 
3. Obtain multiple quotes: Get multiple quotes to compare prices for the coverage. 
4. Evaluate policy terms: Understand what is and isn’t covered in the policy. 

Tips for Managing Risk

When you have a vacant property, you want to minimize risks to keep insurance premiums down and reduce the chances of a claim. 

Maintaining Property Security

It is wise to install security systems on vacant properties that serve as a deterrent to nefarious individuals. You should also regularly visit and inspect the property so that the public sees that people are on the property and it isn’t abandoned. 

Fire Prevention Strategies

While the electricity may be turned off of a vacant property, it is important to monitor electrical systems to ensure that a fire doesn’t break out. Clear out debris that could be a fire starter or accelerator. 

Environmental and Weather Considerations

Ensure that the property is prepared for weather disasters. Weatherproof where possible to reduce the chance of a loss and ensure that the property has good drainage and water management systems. 

Cost Factors for Vacant Property Insurance

Insurance companies will determine the cost of vacant property insurance based on: 

• Location and crime rates: Some areas are more prone to vandalism and crime, resulting in higher rates. 
• Property condition and history: A building that has a history of claims will have higher premiums than a building that has no claims. 
• Level of coverage desired: The higher the coverage, the more the policy will cost. 

Legal and Financial Implications

A property owner is responsible for maintaining the property when it is vacant. There may be mortgage considerations and requirements to have insurance, and this needs to be updated if the property is vacant for any given period of time. Plus, owners don’t want to pay for losses out of pocket, especially if someone is trespassing and gets hurt or does damage to the property. Owners should realize that vacant property insurance is more expensive than traditional commercial property insurance due to the increased risk of loss.