In the current economy, many recently-occupied houses and commercial and industrial buildings are now vacant, due to foreclosure, lack of tenants, business closure, and other reasons. Obviously, vacant buildings are a concern from social and economic standpoints. What many owners don’t realize, however, is that a vacant building can also be a problem from an insurance standpoint.
Most insurance policies exclude coverage for a claim when a property has been “vacant” or “unoccupied” for a specified period of time prior to the “loss” (i.e. a fire, flood, or other problem for which an insurance claim has been filed). Often this time period is as short as 30 days, although it may be longer in some insurance policies.
Let’s say you own a commercial building and your only tenant in the building closed its business on May 31. After a few weeks, you have not been able to find a new tenant. On July 10, you visit the building, only to discover that a pipe has burst and flooded the whole place. Your insurance policy on the building provides that if the building has been vacant for more than 30 days, the insurance company will not provide coverage for any loss. Because your old tenant moved out on May 31, the building has been vacant for 40 days, and the insurance company likely will not cover the flood damage. This means that you’ll probably have to pay out-of-pocket to repair the damage and make the building rentable again.
It is important to note that even buildings that are occasionally used – such as a cottage or a warehouse – could be considered vacant if they aren’t used on a sufficiently regular basis. Also, a building that is being renovated may be considered vacant (although depending on the work being done, it may be eligible for a special construction policy).
If you own a vacant building, you should talk to your insurance agent as soon as possible to find out if there’s any way to maintain coverage on the building. You should also work as quickly as possible to locate a new tenant for the building, even if it is a temporary tenant.
This article was written by Melissa L. Demorest, Associate at Demorest Law Firm. Click here to view her professional resume.
