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30 March 2017
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DON’T TAKE AN INSURANCE HIT ON EMPTY PREMISES

Guy Other
Guy Other is chief executive at vacant office service provider Orbis

13 October 2016 |  Guy Other 

 

A failure to take rigorous measures to secure vulnerable vacant property could also imperil your company’s coffers, as Guy Other of Orbis explains

 

Insurance company Aviva reports that £2 billion worth of damage is done to UK property each year through vandalism and arson, with a quarter of this damage happening in empty properties. And, although detailed records of all fires and theft in unoccupied buildings within the UK are not available, insurers continually report this type of loss as very significant.


Property insurers have a poor experience with vacant property. They therefore tend to compensate by: applying higher rates; reduced cover, for example, for perils and/or basis of settlement; higher excesses; and regular inspections and reviews – sometimes even as frequently as monthly or weekly. 


When a building is occupied, the tenants contribute to surveillance, maintenance, security, and fire safety. But when a building is empty, this protection is missing.  


Because of the higher risks associated with empty properties, not all insurers will cover them. Carefully research the coverage options available for the vacant property. 


Getting the insurance wrong could prove critical for the property, and detrimental to business risk and the owner’s bank balance. 


Insurance responsibilities 

When a property is going to become void, property and facilities managers must make it a top priority to inform their insurance company to ensure that the premises are covered in the event of intrusion or damage. If this doesn’t happen, there could be a breach of the ‘change of occupancy clause’. 


The potential danger posed by the empty building to any intruders must also be taken into account, as there is a risk of paying compensation to anyone injured on the premises. Property managers are legally required to maintain a safe property, even when the building is vacant. Under the Defective Premises Act and Occupiers Liability Act, a duty of care exists towards third parties who might be injured by failure to maintain or repair the property.


When a building is likely to remain empty for a while, it is necessary to manage the shutdown in an orderly and structured fashion. Where a managing agent, builder or specialist firm is taking over responsibility, a formal handover should take place. This should include an accompanied inspection before handover. Regular inspections, with a full audit trail, are often necessary to remain compliant with insurance requirements and health and safety regulations. 


Property inspections

Insurers typically require regular, auditable inspections of a void property. It is essential that FMs check how often the property needs to be inspected under the policy. The insurance policy will specify how regular property inspections should be and what they should cover. Some policies are content with monthly inspections, others will require weekly, or even more frequent, visits – all with a full audit trail to demonstrate compliance. 


Visits can last anything from 15 minutes to two hours. They should be regular but on rotation to ensure that they cannot be pre-empted by criminals staking out the building. Instead, it will be clear that the building is 

being monitored regularly.


Professional inspectors tend to carry out inspections by going through a list of questions on the building’s security and compliance. The questions are generally specified by the insurer, are specific to the property, and vary by building type and location and level of insurance cover. 


Guardianship

Guardianship is one method that FMs consider for keeping their void property secure. Here again, they must be mindful that they are legally bound by the ‘duty of care’ to keep safe anyone who enters their premises.


FMs should ensure that their insurers are consulted prior to entering into any agreement. Before they accept the changes in occupation and use, the insurers will wish to examine the service contract and generally satisfy themselves that any consequent changes in risk are acceptable. 


It is important to check the building when this form of temporary use has ended and inform the insurers of the change of status. 


Property managers should also be aware that when they are looking to reclaim their property, the Protection from Eviction Act applies to anyone who is a ‘residential occupier’ of a building – including property guardians.  

 

Guy Other is chief executive at vacant office service provider Orbis 


More information:

Good Practice Guide to Vacant Property Management

Defective Premises Act 1972