Unoccupied buildings and their new risks during lockdown
14 July 2021
14 July 2021
Robert Burke, Head of Project and Building Consultancy, Cluttons
Damaged buildings during lockdown that haven’t been repaired and the implications this has on the property long-term
Property owners and occupiers face challenges to manage unoccupied buildings, often remotely, whilst at the same time insurers are facing unprecedented business interruption losses and a rise in property damage claims during the lockdown periods.
Common types of damage are fire, local flooding, squatters and graffiti, as well as the more hidden issues of equipment failure and a lack of proper commissioning and theft. Analysis, undertaken by Crawford, of fire claim submissions during lockdown show there was a reduction in the number of fires within commercial and domestic properties. Despite this the insurance sector reported an increase of 40% overall of fire-related incidents. This is due to the huge increase (187%) of outdoor incidents, which include domestic and commercial outbuildings, with arson suspected as the source of almost 1/3rd of outbuilding fires and 1/5th of outside fires.
Damage has also occurred because of an increase in unoccupied buildings, exacerbated at times by already delayed or tardy maintenance programs. Closed shops, pubs and other venues, including the inability to legally go into other people’s houses or gather in groups, has led to opportunists looking for a home for their creative thrill seeking. Joy riding and illegal use of large, unused car parks has led to minor damage such as tyre marks, impact to boundary and perimeter walls – and difficulty in tracing the perpetrators. More significant damage has also resulted, from damage to lighting and signage and wear to surface areas and issues, such as fires and graffiti. Squatters have long since been a risk to vacant properties. With this activity comes increased potential for theft and other damage, not to mention depreciation in value with a difficult to move tenant not paying rent.
Rapid emptying of commercial space as people worked remotely, with very little prior planning, almost certainly meant that decommissioning of the building and services were not undertaken at all. This lack of preparation and the ongoing temporary lack of use of the buildings has seen equipment seizing up and needing further work.
What is the solution, what can be done to prevent this?
- Early intervention and emergency work to mitigate the damage
- Regular inspections
- Increased testing and maintenance of fire systems, particularly in residential buildings, and proper de and re-commissioning of the services and building
- Maintaining landscaping and keeping vegetation clear of buildings
- Securing the property in a robust and strategic manner
- Remove combustible materials inside and outside of the property
Whilst decommissioning of services is key, timescales and uncertainty generally means that this has not been possible. Well-structured security can make a difference. It is essential to ensure that the wording to any security contracts is well considered and allows for a periodic walkthroughs and inspection of the property, reporting on key issues. There are barriers to simply providing security, mainly around the landlord and tenant relationship. Although the detail of different leases will vary, the basic guidance is that under most standard commercial leases the tenant is responsible for the demise, including security and maintenance. This caused problems when the Government prevented occupation of properties, similarly landlords did not then automatically become responsible.
Government lockdowns added a tension to any planned and existing work, not to mention unplanned or essential work because of damage caused by vacancy and inadequate checking for example. Whilst there was not a sudden shortage of contractors, there was a shortage of materials and existing work was either delayed or put on hold as contractors worked out how to navigate through new rules. This sometimes saw certain works packages stop either because workers were isolating, or they were unable to work safely and within the guidance. It takes two people working in close proximity to undertake many such tasks, including boarding up windows. Most property owners and property managers had to wait for extended periods to schedule site visits and for remedial work to be undertaken. Although, of course, as things settled down there was an idea window in which building work could be undertaken in totally empty buildings, increasing speed of delivery of a project and safety.
Many real estate insurers offered their support during these challenging periods, in some cases temporarily relaxing their unoccupied property stance; although, this was not for an extended period. In addition, there is a great deal of focus among brokers, loss adjusters and insurers to ensure valid claims are paid promptly to ease policyholder cashflow complications. Claim payment delays generally occur when there is a lack of supporting information concerning the causation of the loss and these details must be explored more extensively by the insurers. The whole point of insurance is that it pays out simply and genuinely when it is needed that is the acid test of the system. Some have been found wanting and this will, no doubt, come back to haunt them during renewals season. Those who faced large claims will also be positioning tighter wording, so we are reminded of a favourite property maxim, Caveat Emptor!
I think it is important to point out that most damage is small or if not uninsured then almost uninsurable. By this I mean that the remedy for most repairs in buildings underpinned with a lease or even a licence will be through the landlord and tenant contract rather than forming part of an insurance claim. Additional difficulties arise when there is no lease or the tenant (or landlord) has disappeared and we will see a lot of that, even with Government help.
What can we do collectively, moving forward to minimise risks and bring about some change?
Here are some points to consider:
- Make sure that inspections are undertaken regularly on empty and even occupied buildings, and that there are proper reports and actions.
- Check the wording of policies and the detail of excess and premiums carefully – brokers and underwriters can help with this as can property professionals.
- Ensure security is set up quickly.
- Make sure that insurance assessments are accurate and fully up to date so that the building is insured for the correct total – property professionals can assist here.
- I would like to see greater levels of collaboration between all stakeholders, how often do insurance companies themselves read the lease take property advice or insist on regular inspections.
- There ought to be more insurance/property related risk assessments and visits to fully understand risks taken on and how to mitigate. This happens with large assets and risks, but does it occur enough? And does it reach smaller risks and assets that may in fact by a greater insurance risk?
- Take time to understand the landlord and tenant relationship as well.
 Crawford & Company® Data Driven – Fire, 2020
This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.