If you have owned a rental property, you have most likely experienced a vacancy at some point. Vacancies happen for a variety of reasons and can impact landlords in different ways. You may be surprised to learn that, under most landlord policies, losses can be reduced or even excluded depending on the details of the vacancy and the length of time the building has been vacant. Most landlord insurance policies have a vacancy clause, and it is important to understand what implications the vacancy clause has on insurance coverage and when it comes into effect.
How long does the property need to be vacant before the clause comes into effect?
When there is a vacancy clause, it usually does not come into effect immediately. The property typically needs to be vacant for a certain period of time. This period of time is outlined in the insurance policy and commonly ranges from 30 to 60 consecutive days
How is a “vacancy” defined?
Insurance companies may define vacant properties in different ways. Generally speaking, a rental property is considered vacant if it does not meet certain occupancy criteria. If a building owned by a landlord does not have enough people renting or using it for their businesses, it could be considered vacant according to the landlord’s insurance policy.
It's important to note that properties under construction or renovation are typically not considered vacant while they are actively being worked on. With that said, insurance policies may have specific provisions or conditions regarding the definition and coverage of vacant properties, so it's crucial to review the terms and conditions of the policy in question.
How does vacancy impact my insurance coverage?
If your property has been vacant for a time period that coincides with that of the vacancy provision in your insurance policy, it will likely impact the coverage available. In most cases it impacts the following perils significantly:
- Sprinkler leakage, unless you have protected the system against freezing;
- Breakage of building glass;
- Water damage;
- Theft; or attempted theft.
Most insurance companies will not cover losses derived from the perils listed above if the policy has been vacant for the amount of time described in the vacancy provision. In addition, it likely reduces the payout for other covered losses (such as fire) by a set amount such as 15% (or more).
When your property becomes vacant, especially for a longer period of time, it becomes more vulnerable to loss. Even if you or a third party regularly stop by to check on the property, it is not the same as having someone permanently occupying it. Therefore, for insurance companies, the vacancy clause serves a crucial purpose in addressing the specific risks and challenges associated with vacant properties.
Do I need to inform my insurance company if my property becomes vacant?
While it’s usually not a requirement to let your insurance company know when your property has become vacant, it is always a good practice. In the event of a claim, you would have to disclose the vacancy, as failing to do so could affect your ability to recover under the policy. It is a good idea to contact your insurance company when you have or expect to have a vacancy in order to fully understand how it impacts your coverage.
How to minimize the risk when a property is vacant
Since vacant properties are at a higher risk of loss from vandalism, theft, and other perils, it’s important to take certain precautions in order to safeguard your investment. Please see below for some recommended actions to take in the event of a vacancy:
- Regular Inspections: Schedule regular inspections of the property to check for any signs of damage or maintenance issues. By identifying and addressing issues early on, you can correct them before they become serious problems. Inspections should occur on at least a weekly basis.
- Secure the Property: Ensure the property is properly secured to prevent unauthorized access. Change the locks upon tenancy turnover, and consider installing security systems and utilizing timers or motion-sensor lights to create the appearance of activity and deter potential burglars or vandals.
- Maintain Utilities: Keep essential utilities, such as electricity, water (in certain situations), and heating, turned on at a minimum recommended level. This helps to prevent issues such as the failure of security systems, freezing pipes, excessive humidity, or other damage that can result from prolonged disuse.
- Regular Cleaning: Schedule regular cleaning sessions to keep the property clean and free from dust, pests, or mold. Vacuuming, dusting, and ensuring proper ventilation can help maintain the overall condition of the property.
- Landscape Maintenance: Maintain the exterior of the property by keeping the lawn mowed, shrubs trimmed, and by removing any debris. An unkempt exterior can signal neglect and attract unwanted attention.
- Pest Control: Take preventive measures against pests by arranging for regular pest control services. This can help mitigate potential infestations and prevent damage caused by pests.
By taking these precautions and actively maintaining your vacant rental property, you can minimize the risk of damage and ensure its overall preservation until a new tenant is secured.