Here we answer some of the more frequently asked questions about insuring unoccupied or empty commercial properties.
What is the difference between unoccupied and vacant?
In relation to commercial properties, unoccupied and vacant mean more or less the same thing, unlike in relation to housing or domestic properties. Commercial properties are unoccupied if they have no tenant(s).
Regular commercial property insurance usually provides cover for short periods of unoccupancy, such as holiday closures. Also, there is usually a short period of normal cover if the premises are to be temporarily unoccupied between tenancies. This is often limited to 30 days.
What does unoccupied commercial property insurance cover?
Insurers regard unoccupied commercial properties as high risk. Accordingly, they usually offer cover for a limited range of perils. Because of the risks, the cost may not be cheap.
The most common cover is referred to as FLEA – Fire, Lightning, Explosion & Aircraft. Other perils may be available but full cover is unlikely to be offered.
Are there policy excesses? Usually not on the main FLEA perils. If cover for subsidence or landslip is offered, there will probably be quite substantial excesses – £1k is likely to be a minimum. This is not due to the unoccupancy, but is standard for these perils. If other perils are offered, they may be subject to excesses. Accepting voluntary excesses may reduce the cost of cover, but this will vary on a case by case basis.
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How is unoccupied commercial property insurance calculated?
As with all insurances, many factors are taken into account in rating premiums for unoccupied commercial buildings. This is not an exclusive list.
Security measures – alarms, inspections, security lighting or fencing
The reason for unoccupancy
Period of cover required. In common with most insurances, short period cover is likely to be more expensive.
Do I need unoccupied commercial property insurance?
In a nutshell – unoccupied commercial property insurance isn’t compulsory, but it would be prudent to have cover to protect your asset, even against the limited range of perils usually available.
If there is any mortgage, loan or other finance secured on the property, the lender will likely require that insurance cover is kept in force to protect their interest in the building as security. If this is the case, it would be wise to let them know if reduced cover was in force during unoccupancy.
Why do I need unoccupied commercial property insurance?
Commercial property insurance will usually provide only limited cover for unoccupied property – 30 days is common. After the period allowed, the policy cover will lapse completely and unoccupied cover will be required.
As noted above, you may need cover to comply with the requirements of financial lenders.
What are the most common types of unoccupied commercial property insurance?
The main type of cover is insurance on the fabric of the building itself.
However, don’t overlook the risk of liability to others whilst commercial premises are unoccupied. Whilst occupied, the tenant will be liable for the risks of occupation and should insure them. Even then, there is a liability risk to the landlord, arising from building defects outwith the control of the occupier, for example, falling slates causing damage or injury.
Is commercial insurance the same as business insurance?
The terms commercial insurance and business insurance are pretty much interchangeable. Both are generally used to distinguish them from domestic insurances provided to private individuals, for example on homes & cars.
Business or commercial may be applied to a wide range of policies designed to protect different aspects of business operations. Different insurers may use different terms to describe similar policies.
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What’s the difference between unoccupied business insurance and unoccupied commercial property insurance?
As described above, there’s no definite difference between unoccupied business insurance and unoccupied commercial insurance. Insurers may use one or other of the terms to describe their range of policies. An insurer whose portfolio includes mainly offices or smaller shops might describe their policies as business, whereas an insurer covering larger companies or factories may use the term commercial. There is no hard & fast rule.
Is insurance all I need?
No. Insurers will usually expect services & utilities – water, electricity, gas etc – to be turned off and the premises to be regularly inspected. There may be additional security requirements.
Turning off water minimises the risk of burst pipes or damage from vandalism or theft of pipes. Turning off electricity minimises the risk of fire from accidental causes or vandalism through theft of cables. Electricity supplies to fire & security alarms or lighting should not be turned off, for obvious reasons.
If financial lenders are involved, it would be a good idea to let them know if the insurance cover changes as a result of premises becoming unoccupied.
How much insurance do I need?
The insurers will expect you to insure for the cost of rebuilding, should the property become a total loss, for example by a devastating fire. This could be more than the cost you paid to buy the premises.
In unoccupied properties the risk of substantial damage or total loss is higher than in occupied or domestic properties because it may take longer for incidents to be discovered