The landscape of retail property has been evolving over the past several years. Therefore, vacant space has become a more prevalent concern. This can be from small tenant transitions in strip centers to large box stores exiting shopping malls. While property owners and managers try to lay out a strategy for what’s next for that space, there’s an immediate risk to address. How do you handle the vacancy during the interim? When asking this question, there are three other questions you should consider first:

  1. Does your property policy contain a vacancy provision? In most cases, a property policy will contain a vacancy provision. This is a clause within the policy that amends the coverage after a space is vacant for more than 30-90 days depending on the policy. Most polices are written on replacement cost. Once the vacancy provision kicks in, coverage is then amended to actual cash value. Meaning if there’s a claim, depreciation will be factored into what the insurance carrier will pay for the loss.Other items that would normally be included in coverage could be excluded due to vacancy such as theft, vandalism, and water damage (including sprinkler systems). That’s a best-case scenario. Worst case scenario is that coverage could be excluded if there’s vacancy after the 30-90-day period.
  2. How’s your building secured? It’s important to always make sure the building is secured from unintended entry. This includes securing and locking all doors and windows, installing alarms and/or security systems, and setting up routine inspections of the property to ensure all measures are working properly. These efforts will not only reduce your risk of loss, but also allow for lower insurance costs when there’s a vacant exposure.
  3. Is your risk being transferred? While risk transference is essential for every aspect of real estate, it’s particularly relevant when you’re dealing with vacancy. As you work with service vendors dealing with your space, ask if they carry liability for the work being performed at your property. Or, if you have hired a security service and their system fails resulting in a loss, are they carrying the property liability coverage to cover what has been damaged?

If you have questions about any property vacancy or real estate insurance, reach out to an MMA advisor.

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