What happens to apartment insurance when the property is sold?
Commercial property insurance policies do not automatically transfer to a new owner. The buyer must obtain their own coverage effective at closing, and the seller should maintain coverage until the deed transfers.
Unlike some personal insurance policies, commercial property insurance for apartment buildings does not transfer to a new owner upon sale. The ISO Commercial Property Conditions form (CP 00 90, Section G) states that the policy's rights and duties may not be transferred without written consent of the insurer, and assignment of the policy after a loss does not require consent only for the specific loss that has already occurred.
The buyer must arrange their own insurance program effective at the closing date, with the seller's lender listed as loss payee until the existing loan is paid off, and the buyer's lender (if any) listed as loss payee on the new policy. The seller should maintain their coverage until the deed is recorded to ensure there is no gap. If the seller's policy has a prepaid premium, the seller can request a pro-rata cancellation refund for the unused portion of the term.
During the due-diligence period, the buyer should obtain insurance quotes to confirm the property is insurable at acceptable terms and pricing. Properties with adverse claims history, deferred maintenance, or unusual risk characteristics may face limited market availability or elevated premiums that affect the acquisition's financial viability. The buyer should request the seller's five-year loss runs (most states require insurers to provide these within 10 to 30 business days of a written request) as part of due diligence. The purchase and sale agreement should address insurance responsibilities during the executory period, including which party bears the risk of loss before closing.
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Related Questions
What types of insurance does an apartment building owner need?
Apartment owners typically need commercial property, general liability, loss of rents, umbrella, and workers compensation coverage at minimum.
How much does apartment building insurance cost?
Apartment building insurance typically costs $500 to $3,000 per unit annually, depending on the property's size, location, age, and coverage needs.
What does general liability insurance cover for apartment buildings?
General liability covers bodily injury and property damage claims from third parties, such as a tenant or visitor injured in a common area.
Do I need flood insurance for my apartment building?
If your property is in a FEMA-designated flood zone, your lender almost certainly requires it. Even outside flood zones, flood coverage is worth considering.
What is loss of rents coverage and how does it work?
Loss of rents coverage replaces rental income lost when units become uninhabitable due to a covered property damage event, such as a fire or major storm.