Guides
Vacant building insurance and the vacancy clause
After 60 days vacant, the ISO property form drops vandalism, water damage and theft and cuts other payments 15%. What counts as vacant and how to keep coverage.
Under the ISO commercial property form, a building that has been vacant for more than 60 consecutive days (the vacancy clause) loses coverage for vandalism, water damage, theft, glass breakage and sprinkler leakage, and the carrier cuts payment for every other covered cause, including fire, by 15%. Whether a building is "vacant" is a defined test, not a matter of opinion, and the owner's test differs from the tenant's. If a property will sit empty, the time to act is before day 60, with a vacancy permit or a separate vacant building policy.
How the vacancy condition defines vacant
The vacancy condition in CP 00 10, the building and personal property coverage form, applies different tests depending on who holds the policy.
- Owner or general lessee. "Building" means the whole building. It is vacant unless at least 31% of its total square footage is rented to a lessee or sublessee and used by that party to conduct customary operations, or used by the owner to conduct customary operations.
- Tenant. "Building" means the unit or suite leased to the tenant. It is vacant when it does not contain enough business personal property to conduct customary operations.
- Construction and renovation. Buildings under construction or renovation are not considered vacant.
Customary operations is the phrase doing the work. A storefront with a lease and inventory sitting unopened for weeks is not vacant for the tenant if its business personal property remains. A multi-tenant building that is 70% leased but where half the tenants are using their suites for storage may or may not meet the 31% test. Policy language varies, and businessowners policies and carrier forms carry their own versions, so check yours.
A hypothetical example
Say a landlord owns a 100,000-square-foot strip center. Twenty-eight thousand square feet is rented to operating retailers, and the rest has been vacant for months. The landlord assumes the center is 28% occupied, so the building is "vacant" under the 31% test, even though tenants are in the building every day. A 60-day clock started running before anyone noticed. The same landlord with 31,000 square feet in operation would pass.
What happens after 60 consecutive days
Once the building has been vacant for more than 60 consecutive days before a loss, the standard condition says:
| Cause of loss | Result |
|---|---|
| Vandalism | Not paid |
| Sprinkler leakage | Not paid, unless you have protected the system against freezing |
| Building glass breakage | Not paid |
| Water damage | Not paid |
| Theft and attempted theft | Not paid |
| Any other covered cause, such as fire or wind | Payment reduced by 15% |
A vacant building loses most of the claims that empty buildings produce; the commercial property exclusions: what the standard policy won't pay guide places this clause among the others. Stripped copper, burst pipes in a cold snap, kicked-in windows and fire set by trespassers are the common losses. The 15% reduction on a fire claim is a haircut, not a denial, but it applies to the entire loss. In the strip-center example, a $2 million fire loss would pay $1.7 million before the deductible, if the policy is otherwise in force.
Note that the clock is counted back from the date of loss and the days must be consecutive. A new lessee who genuinely opens for business can end the vacancy, though a short or token occupation invites a dispute. Treat the count as a deadline, not a negotiating position.
Vacant, unoccupied and under renovation
The words are not interchangeable. In the ISO form, vacant concerns the contents or the share of square footage in use. "Unoccupied" is a looser term some forms and carriers use for a building where no one is present but the contents remain. A seasonal business that closes for winter with all of its equipment in place is generally unoccupied, not vacant under the tenant test, but a carrier's own wording can say otherwise. Disclose seasonal use at application.
Construction and renovation get a carve-out that carriers read narrowly. A few days of painting is not a renovation. Expect the carrier to ask for permits, a contractor and continuing work, and for a gut renovation consider builder's risk insurance: covering a building while it is under construction, which is written for it. Sitting on a half-finished job with no crew is vacancy.
Options when a building will sit empty
- Vacancy permit. ISO's vacancy permit endorsement,
CP 04 50, lets you buy back some or all of the suspended coverage for a stated permit period on named premises. It removes the 15% reduction during that period and typically adds premium. Vandalism and sprinkler leakage can be excepted to lower the cost. When the permit ends, the standard condition returns. Underwriters may require inspections or security measures as a condition. - A separate vacant building policy. Specialty carriers in the excess and surplus lines insurance explained market write vacant property coverage. These policies are often written on a named-perils basis, may value at actual cash value instead of replacement cost, and often carry higher deductibles, minimum premiums and conditions on utilities, inspections and security. Review the basic, broad and special causes of loss forms: what each covers guide if you are unsure what named perils means.
- Negotiated changes to the existing policy. Some carriers will modify the vacancy terms by endorsement, usually for stronger risks. Ask before the 60 days, not after.
Agreed value and blanket limits are hard to keep on a vacant building, so expect some valuation terms to change.
Reducing the risk, which also moves the price
Underwriters of vacant risks ask what you are doing, and a documented answer moves the quote. A practical list:
- Keep the heat on or drain the pipes and shut off the water for the winter.
- Maintain the sprinkler system and fire alarm monitoring, and protect the sprinkler system from freezing.
- Secure openings: board or lock doors and windows, light the exterior, and remove signs that advertise the vacancy.
- Inspect on a schedule, such as weekly, and keep a dated log.
- Remove combustibles, trash and stored materials.
- Keep utilities on where the building needs them, and tell the carrier if they are off.
- Cut the vegetation, plow the snow and keep the roof drains clear.
Vacant buildings also create liability exposures such as trespassers and injuries on a neglected property, so confirm that the general liability policy still rates the premises correctly. premises liability: how slip-and-fall claims are handled explains the claim side. Some municipalities have vacant-property registration rules, so check local requirements too.
Telling the carrier
The standard vacancy condition does not itself require you to give notice that the building has become vacant, but application and renewal questions do ask, and a misstatement can jeopardize the claim and the policy. Report a change in occupancy when it happens. Loan documents often impose their own duty to notify the lender. If you are a landlord or property manager, track occupancy across the building by square footage each quarter, not just at renewal. commercial property insurance: what it covers and what it doesn't covers the underlying policy.
Key takeaways
- The ISO vacancy condition starts after more than 60 consecutive days of vacancy and removes six causes of loss while cutting other payments by 15%.
- Owners must have 31% of the building square footage in customary use; tenants must keep enough business personal property to operate.
- Buildings under real construction or renovation are not vacant, but a stalled job is.
- A vacancy permit such as
CP 04 50, a negotiated endorsement or a specialty vacant building policy lets you keep coverage. - Report occupancy changes, keep an inspection log and fix the cause of the vacancy risk before day 60.