30, 45 or 60 Days: The Unoccupancy Clause Trap in Standard Policies

A tenant hands back the keys in March. The agent is confident about a re-let, so the building sits quietly while viewings are arranged. In May a pipe fails on the first floor and water runs for a fortnight before anyone opens the door.

Even with a commercial property insurance policy in place, making a claim may be difficult. In most policies, there is a clause that changes the terms of cover automatically once a building has been empty for a set number of continuous days. 

That clause is one of the most common reasons property owners find themselves with less protection than they thought they had, and it is worth understanding properly before an empty period begins rather than afterwards.

General Information Disclaimer

This article is for information only and does not constitute advice on any particular policy. Unoccupancy terms vary between insurers and between policies, and the terms that apply to your property are those set out in your own policy wording. Before relying on anything here, check your wording or speak to a qualified broker who can assess your circumstances. This matters particularly where a building is already empty, or where inspection and security requirements are written as conditions precedent.

What Is an Unoccupancy Clause?

Almost every standard commercial property policy contains a definition of an unoccupied building and a trigger period attached to it. Once the building has been unoccupied continuously for longer than that period, a different set of terms applies for as long as it stays empty.

The trigger is commonly 30, 45 or 60 days. Which one applies to you is not a matter of industry convention, it is a matter of what your particular insurer wrote into your particular policy, and the same owner can easily hold three properties on three different triggers without realising it.

What happens at the trigger point varies too, but it usually involves some combination of the following:

• Cover narrows to a restricted set of perils. Many wordings fall back to what the market calls FLEE cover, meaning fire, lightning, explosion, and earthquake. Theft, malicious damage, accidental damage and impact frequently drop away at exactly the point the empty building becomes most exposed to them.
• Conditions attach to the cover that remains. Inspections at a stated frequency, water systems drained or isolated, mail cleared, alarms maintained and set, utilities managed in a particular way.
• A duty to notify arises. Most wordings require you to tell the insurer once the property becomes unoccupied, often within a specified number of days.

None of this is hidden. It is in the wording. It is simply that the wording is long, the clause is not flagged, and the change takes effect on a date that nobody has diarised.

Why the Conditions Matter More Than Owners Expect

Inspection and security requirements attached to unoccupied buildings are not usually presented as helpful suggestions or as a route to a better premium. They are frequently written as conditions precedent to liability, which means compliance with them is a precondition of the insurer paying at all.

If a wording requires a documented inspection every 14 days and the last recorded inspection was six weeks before a fire, the insurer is entitled to take a position on that, whether or not the missed inspections had anything to do with the cause of the loss.

The practical consequences are simple enough:

• Someone has to physically attend at the stated interval
• Someone has to write down that they did, with a date
• If the wording says water must be turned off and drained down, it needs to be turned off and drained down rather than simply turned off at the tap
• If it says intruder alarms must be maintained and set, the maintenance contract needs to still be running

Keeping a dated inspection log, with photographs, costs nothing and is among the most useful things an owner of a vacant building can do.

What Counts as Unoccupied?

Insurance wordings use ordinary words in specific ways, and unoccupancy is a good example.

A building can be full of racking, stock and furniture and still be unoccupied for policy purposes, because most definitions turn on human occupation and trading activity rather than on whether the building is empty of contents. A part-let building may be treated as unoccupied if the occupied portion falls below a stated proportion of the floor area. A building undergoing a refurbishment between tenants may be caught by the unoccupancy clause, by a contract works exclusion, or by both at once.

Then there is the question of what breaks the clock. Some wordings count any continuous period during which the building is not occupied, and a contractor spending an afternoon there does not reset the count. Others are drafted differently. This genuinely varies, and it is one of the specific points worth putting to your insurer in writing rather than assuming.

The wider point is that these are contractual terms with defined meanings, and reading them the way you would read ordinary English is how owners end up surprised.

What to Do When an Empty Period Is Coming

Almost every unoccupancy problem is solvable in advance and very difficult to solve after the event. If you know a building is about to stand empty, whether that is a lease ending, a sale going through, a redevelopment starting or a business relocating, the sequence is straightforward.

Find the trigger period in your current wording. It will be in the general conditions or in a dedicated unoccupancy clause, along with any notification requirement.

Tell your broker or insurer before the building empties. A property notified in advance is a risk being managed. A property notified afterwards is a disclosure conversation. If you are an existing client, our tell us what's changed form is the quickest way to flag a change in occupancy.

Establish what cover continues and on what conditions. Get the inspection frequency, the security requirements and the utilities requirements in writing.

Decide whether the restricted terms are acceptable. Where the fallback terms leave too much exposed, unoccupied commercial property insurance is designed for precisely this position and can usually be arranged with a broader set of perils than a standard policy would leave in place. Vacant property policies are typically written for a minimum term of around three months. Our guide to insuring an empty commercial property covers the questions an insurer will ask at that point.

Keep the liability element in view. An empty building still attracts trespassers, contractors, agents and passers by, and the liability exposure does not pause because the building is not trading.

Which Policies Contain These Clauses?

Unoccupancy clauses sit in wordings across the whole commercial insurance range, not only in policies bought specifically for empty buildings. They apply to:

• Landlords letting industrial or retail units where one unit falls vacant between tenants, which is why the terms of a commercial landlord insurance policy repay careful reading at renewal
• Investors holding mixed portfolios under property owners insurance, where a single empty unit in an otherwise full building can bring the clause into play
• Owners of let commercial property waiting on planning or on a sale
• Businesses that vacate their own premises, where an office left behind after a move or a retail unit closed pending assignment of the lease is an unoccupied building for policy purposes, even though the company still holds the lease

Vacant Commercial Property Insurance From Ellis David

We have been arranging commercial property cover from our office on Essex Road in Islington for over 50 years, and the team between them hold more than 150 years of broking experience.

We have agency agreements with over 100 UK insurers and MGAs and access to more than 1,000 products and schemes, which matters here because unoccupied and partly vacant buildings are among the risks a narrow panel struggles to place.

We are authorised and regulated by the Financial Conduct Authority, our advisers are UK based and reachable by phone or email, and we will read your existing wording with you before recommending anything. 

If a property in your portfolio is about to stand empty, or has been empty for a while and you are not certain where that leaves you, get in touch with the team. You can also meet the people who would be handling it before you pick up the phone.

Unoccupancy Clause FAQs

How long can a commercial property be empty before cover changes?

It depends on your wording. Trigger periods of 30, 45 and 60 continuous days are all common. The only reliable answer is the one in your own policy, and it may differ between properties on the same portfolio.

Does the cover stop completely once the clause applies?

Usually not. More often the cover narrows, with a restricted set of perils continuing and others falling away. Some wordings reduce to FLEE cover, meaning fire, lightning, explosion, earthquake and escape of water. You need to check what remains rather than assume the policy has lapsed.

Do I have to tell my insurer the building is empty?

Most wordings require it, often within a set number of days. Telling them before the property empties is better than telling them afterwards, because it gives everyone time to agree terms rather than discover a problem at claim stage.

What happens if I miss a required inspection?

It depends on how the condition is drafted. Where inspections are a condition precedent to liability, missing them can affect a claim even if the missed inspection had nothing to do with the loss. Keeping a dated log is the simplest protection.

Is a building with furniture and stock still unoccupied?

It can be. Most definitions turn on whether people are occupying and trading from the building rather than on whether the building is empty of contents.

Can a policy be arranged for a short empty period?

Vacant property policies are commonly written for a minimum term of around three months, and can be arranged for longer where the empty period is expected to run on. Where a property is relet sooner than expected, talk to us about the options.