This article looks at the different insurance requirements you need to consider if your commercial property becomes unoccupied, what the insurance cover might look like for a property that will be unoccupied for a long period, and how you can manage an unoccupied property.

Is your unoccupied property insured?

There is every possibility that your property may become vacant at some point, this could be due to the expiration of a lease, a break clause in a lease, a refurbishment and modernisation programme, or the sale of the property.  If this is only for a short period, your insurer may provide cover.  However, if the property is likely to be unoccupied for longer, your insurer will see this as an increased risk and may reduce the scope of cover they are willing to provide.

It is vital that you let your insurance broker or insurer know as soon as you think your property is likely to become vacant so the most appropriate cover can be negotiated for you, and there are no surprises if you need to make a claim.

What is unoccupied property insurance?

Unoccupied property insurance provides cover on the basis that the property is empty and considered a higher risk by insurers.  This may lead to reduced cover, additional premium, special terms and conditions being applied, and additional security requirements.

The building insurance arrangements of the freeholder and those of your own business will be based on what happens within the curtilage of the premises.  It is the nature of the occupation which determines the insurer’s attitude to the risk and consequently, the extent of cover they are willing to offer, the premium, and the terms and conditions they require.  When a business is operating from a building an insurer will assume that the premises are occupied during normal business hours and therefore the risk of a claim from events such as theft, arson or escape of water during those hours is reduced.  When a property is being sold or refurbished the probability is that it will become unoccupied for a time.  Insurers will see this as increasing the level of risk, for example, a burst pipe could go unnoticed for several days or even weeks before being discovered.  Likewise, a human presence clearly acts as a deterrent to thieves and vandals etc.  Without this physical presence there is a higher chance of something going wrong and a claim being made.

What does unoccupied property insurance cover?

Your insurer may offer full cover if the unoccupancy is going to be for a short period of time.  But if the unoccupancy is likely to exceed 30 days, cover will almost certainly be restricted, often to only the perils of fire, lightning, aircraft, explosion, and property owners’ liability.  However, some insurers, but not all, will offer wider cover.  In some circumstances it might be possible to obtain cover for those perils that have little or no bearing on the unoccupancy situation. Examples could include perils such as subsidence, landslip and heave; because if a building is going to move, it will do so regardless of whether or not it is occupied.

What isn’t covered by unoccupied property insurance?

If your property is unoccupied there may be no cover for perils such as riot, civil commotion, malicious persons, theft or attempted theft, storm, flood, escape of water, impact and accidental damage.  You will also need to be particularly careful if you have contractors working in, on, or around the property undertaking, for example, dilapidations, renovations, modernisation and conversion works.

Your insurance broker will offer guidance and advise you of exactly what is and isn’t covered.

How much does it cost to insure an unoccupied property?

That depends on numerous factors.  To obtain a quotation for an unoccupied property or properties, you will need to provide the underwriter with the same level of information as you would if the property or properties were to be occupied, and more.  This will include an up-to date reinstatement valuation (during these inflationary times, it is vital to get this right at inception and at each renewal), together with details of the location(s), construction, age, previous usage(s), security measures in place, proposed maintenance programme, and details of any losses during the past five years.

It is also helpful if you let your broker or insurer know what steps you are taking to re-let the premises and whether prospective tenants have indicated their interest in your property.

All these factors will influence the premium and the terms and conditions of an underwriter’s offering.  The fact is that unoccupied property is not an attractive proposition for most underwriters as the risks associated with unoccupied property are significantly greater and hence, more expensive to insure.

How do I make my unoccupied property secure?

It is important to ensure the property is secure. Here are some tips to help protect your unoccupied property;

• Maintain the property inside and out
• Keep all security alarms activated
• If you can keep lights on a timer, then do so, make the property look like it’s in use and vary the timing periodically
• Remove all waste, especially any combustible material
• Turn off the utilities, unless required to power lights and security systems, and drain the heating system if you can. However, in the winter months, it might be advisable to keep the heating on low to avoid frozen pipes, but if you do that, make sure you ask your broker or insurer to ensure that you have the approval of your insurer
• Ensure any unnecessary appliances or machinery are turned off
• Remove any valuable furniture, contents and equipment if you can

How do I manage my unoccupied property?

As well as the security of the building, here is a quick checklist to help you manage your unoccupied property;

• Notify your broker or insurer as soon as you think the property will become vacant
• Check your sums insured are adequate to avoid underinsurance
• Review and fully understand the scope of cover being provided by your insurer – if in doubt, consult your broker or insurer
• Frequently review your security requirements and check they are fully functional
• Make sure you can comply with your insurer’s requirements
• Set up a programme of regular internal and external inspections either by you or by an authorised representative – most insurers insist and require these once every seven days and ensure a written record of the weekly visits are maintained (you will almost certainly be asked to produce this information in the event of a loss)
• Carry out any essential maintenance at the property in a timely manner
• Regularly test the fire and intruder alarms
• Make sure electrical and gas safety certificates are up to date (if applicable)
• Switch off the utilities, unless required to power lights and security systems
• Notify both the police and the local authority that the premises are unoccupied (as a reduction in rates may be available)

What should I do with the services at my unoccupied property?

We have dealt with electrical services above, but what should you do about water?  If you are not going to leave the heating on low during the winter, don’t forget to seek your insurer’s approval if you do, then to avoid an escape of water turn the water off and drain the heating system down. It is probable that your insurer will, as a condition of granting cover on your unoccupied property, insist that the water supply is turned off and the heating system drained.    

Summary

While having an unoccupied property is far from ideal, it happens and when it does, we are here to help you find the appropriate cover. The most important thing is to contact your insurance broker or insurer immediately you are aware of the void and to follow the advice given and particularly your insurer’s terms and conditions of coverage.

Next Steps

We partner with a range of insurers who can provide unoccupied property insurance for you and your specific requirements. For further information, please contact us. Alternatively, you can reach me directly at greg.roberts@blwinsurance.com.