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Empty threats - are your unoccupied buildings at risk?

As the recession deepened in 2009, town vacancy rates rose. Wolverhampton was the hardest hit with the highest vacancy rate of the larger retail centres. At the end of December it stood at just under 24% compared to a GB average of 12%.

The number of empty buildings is still increasing, albeit at a slower rate. Some experts believe there will be an insolvency lag which means the worst is yet to come and insolvencies may remain high into 2011.

With the growth in empty commercial properties came an increase in malicious damage and arson. Norwich Union reported a rise in attacks in 2009 and predicted property crime would rise by up to 25% by 2011. In recent years costs have spiralled, the ABI reported in 2008 that claims associated with property crime had cost insurers £7m each week.

Insurers are struggling to meet the requirements to insure vacant properties. Even the most established property owners have found it difficult to obtain cover.

Claims experience for unoccupied premises is very poor and is deteriorating further. The number of claims is rising, not only for arson, theft and malicious damage, but, also for water damage as the result of burst pipes, following the worst winter in decades. As a consequence, it can be difficult to obtain insurance cover for unoccupied properties. Insurers may offer reduced cover e.g. fire, aircraft and explosion, they may increase excesses and they're frequently looking for the 'commercial cushion' of the remainder of the property owner's portfolio.

Although empty properties very often attract a premium loading, insurers will also be looking for evidence of a thorough approach to risk management. Virtually every Property Owner's policy automatically includes an unoccupied premises warranty in some form. Failure to comply with the terms of the warranty will nullify the insurance cover. It is, therefore, essential that property owners review their insurance policy and familiarise themselves with the requirements. If the terms are impractical, this must be raised with the broker/insurers and an alternative solution agreed.

In summary, Chris Ball, Associate Director, recommends taking the following steps to manage the risks in occupied premises:

• visit and inspect premises once every seven days
• turn off all water supplies (other than sprinkler installations) at the mains and drain systems
• if the system cannot be drained down during the period 1 November - 31 March, the heating system should be kept in operation, setting the frost thermostat as necessary
• all combustible waste material must be removed from site (both within the building and externally)
• where practical, arrangements should be made to remove the contents, particularly if flammable or attractive to thieves
• all gas supplies to be turned off at the mains unless such gas is used to heat the premises during the period of unoccupancy
• other than electrical supplies required to maintain fire and/intruder protection, supplies are to be turned off at the mains
• all fire protection and intruder detection equipment to be maintained in efficient working order
• all premises must be made secure against unauthorised entry.  The minimum requirement generally being that all ground floor windows and doors are securely locked and letterboxes sealed
• depending on the location and nature of the site, it may be prudent to arrange 24 hour site security - insurers may insist on this as a condition of cover

Next Steps

To discuss the issues raised in this article or for further information, please speak to your usual Perkins Slade contact. Alternatively you can call 0121 698 8000 and ask to speak to a member of our corporate team or email corporate@perkins-slade.com

Perkins Slade is authorised and regulated by the Financial Services Authority No. 302886.

Perkins Slade Limited is registered at Companies House in England and Wales under Company Number 969374.

Registered Office: 3 Broadway, Broad Street, Birmingham, UK, B15 1BQ.

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