Vacancy Clause
A vacancy clause modifies or restricts insurance coverage when a building has been unoccupied beyond a specified period, typically 60 consecutive days.
The vacancy clause is a standard provision in commercial property insurance policies that changes the scope of coverage when a building becomes vacant. For apartment buildings, vacancy is typically measured by the percentage of total rentable square footage that is unoccupied. When the vacancy threshold is exceeded for more than the specified number of consecutive days (usually 60), the policy terms change significantly.
Once the vacancy clause is triggered, most policies impose two consequences. First, covered claim payouts are reduced by 15%. Second, coverage for certain perils is eliminated entirely, typically including vandalism, sprinkler leakage, glass breakage, water damage, and theft. These are precisely the perils that vacant properties are most susceptible to, making the exclusion particularly problematic.
The vacancy clause is a concern during property transitions such as acquisitions, renovations, lease-up of new construction, or periods of high market vacancy. Property owners anticipating extended vacancy should discuss options with their insurer before the vacancy threshold is reached. A vacancy permit endorsement can extend coverage during a planned vacancy period, though it comes with an additional premium. Failing to address the vacancy clause proactively can result in a denied or severely reduced claim.