As the owner of a vacant commercial building, you should be well aware of increased risks of fire, leakage and illegal use. You should also know that you should inform the insurers as soon as possible when a building becomes vacant. Otherwise, you might face coverage problems in case of damages.
Due to The New Way of Working and the financial crisis, the number of vacant business premises increases strongly. An estimated 20 to 25 percent of the business premises are now vacant for a shorter or longer period, especially in business parks and in shopping centres outside urban areas. This increases the risk of damage. Such as damage by arson, theft of copper or valuables and vandalism. There is also increasingly improper unlawful use of vacant business premises for e.g. the cultivation of hemp. Damage is often significant, as, for example, a water leak is found relatively late or maintenance to the building is poor.
Which properties are involved?
The following properties are more prone to damages:
- Buildings designated for demolition.
- Buildings with squatters.
- Buildings with a history of damages.
- Buildings that are poorly maintained.
- Buildings that are vacant for more than 3 years.
- Building without or with inadequate preventive measures.
Better awareness of risks
To prevent or limit damages and to maintain insurability, owners of vacant commercial properties should be more aware of the risks. They can also take appropriate measures, such as a burglary or fire alarm system or a monthly inspection. Taking the right steps reduces the risk of damages, but also disappointments about possible lower-than-expected damage payments. Continuing to perform periodic maintenance also belongs to these measures. Damages related to deferred maintenance are generally not covered by insurance.
To discover the risk of damage to your vacant property, you can ask yourself the following questions:
- How long has the property been vacant and how low is it expected to remain vacant?
The longer a building stands empty, the greater the likelihood of damage.
- What is the maintenance condition of the property?
A poorly maintained property is an easier target for vandals and theft.
- Is the property insured?
Insurers often apply an exclusion for damages related to deferred maintenance. An uninsured property has a greater chance of poor maintenance and is therefore riskier.
- What is the location of the property: is there social control?
In a remote area or in an impoverished neighbourhood, the risk of vandalism, theft or starting illegal activities such as cannabis cultivation or parties is greater.
- What is the (insured) value of the property?
The height of the maximum possible damage increases as a result and makes the property more attractive to criminals.
- Is there complete or partial vacancy?
At full vacancy, social control is minimal, and the minimal risks increase significantly.
- What preventive measures have been taken?
Preventive measures reduce the risk of damage and theft and increase the chance on alarms and the response.
- Is the property for sale or rent?
If not, deferred maintenance is more likely.
- Are there any renovation or demolition plans?
If a property is scheduled for demolition or renovation, often little or no maintenance is performed, which increases the chance of damages.
- Has the property been squatted?
Squats are often poorly maintained and have a poor social reputation, which increases the risk of damage.
- Are the utilities (water, gas and electricity) still connected?
If these have been disconnected, any present alarm systems have stopped functioning, and less extinguishing water is available after a fire. On the other hand, disconnected gas and electricity connections reduce the chance of fire.
- Do you regularly inspect the property?
Periodic inspections significantly reduce the chance of damages or the development of illegal activities.
- Is there a (partial) vacancy of a business complex?
Obscurity of many units makes insight into/overview of any users difficult. Illegal use of individual units is common. The advice is to periodically ask for a new list of users/destinations.
How can you reduce this risk?
Have you, based on the previous questions, concluded that your vacant property has an increased risk of damages? Then make sure to take the right measures. To give you some examples:
- Properties at a remote location or business park with a high (insured) value can be equipped with a burglar alarm.
- Properties with a very high (insured) value can be equipped with an automatic fire alarm with reporting to a Private Alarm Station.
- For vacant homes, office buildings and apartment complexes, anti-squatting occupancy may provide a solution.
- If the utilities (gas, water, electricity) are still connected, the facilities must meet the applicable NEN standards.
- If the property is no longer heated, you can prevent water and frost damage by draining and sealing water pipes.
- Ensure that the property is inspected monthly, or inspect the building yourself.
- oes the relevant industrial park or mall have a collective security service? It is recommended to participate, or keep participating.
Which policy obligations apply?
Each insurer has its own policy when it comes to exclusions, terms and conditions of insuring a vacant building. As the owner of such property, it is wise to study these. This prevents unpleasant surprises in case of damages. For example, policy conditions often contain:
- Vacancy longer than a certain period (e.g. three months) is only insured under limited conditions. Often, only damage caused by fire, aircraft or storm is covered. Water damage is generally not insured.
- Coverage is only present if preventive measures have been taken, such as alarms or periodic inspection.
- Glass is not always covered.
- Sometimes, there is no guarantee against underinsurance.
- There may be an (increased) deductible.
- Responsibility for inspections of the vacant property is sometimes included as a policy clause. The policyholder must also make demonstrable how he performs this inspection.
- Keep the property periodically maintained. Damages related to deferred maintenance are generally not covered by insurance.
Vacancy versus out of use
In practice, it happens that owners of an empty property place a few filing cabinets in the building and state that the property is used for file storage. To remove any ambiguity, we explain both concepts:
- Vacancy: this refers to the absence of the actual facilities of the building.
- Out of use: this relates to whether the property is in actual use.
A vacant building will often be out of use. But when a building is out of use, it does not always have to be (completely) vacant. There still might be some things present in the building, such as filing cabinets or office furniture, meaning that there is no actual vacancy. However, if the property is not used and/or inspected regularly, the property is not in use. Because this results in an increased risk of damages, you should report such increased risk to the insurers pursuant to the policy conditions Properties not in use are generally subject to the same policy obligations as vacant premises. If the destination of your insured property changes (into vacant), you should report this to the insurers as soon as possible. If you fail to do this and the insurers find out after damages, it may have adverse consequences to the settlement of claims.