What is a vacancy clause in apartment building insurance?

Most commercial property insurance policies contain a vacancy clause that modifies coverage when a building has been vacant beyond a specified period, typically 60 consecutive days. Under standard policy language, a building is considered vacant when less than 31% of its total square footage is rented and used by tenants. This vacancy provision is a standard condition found in the ISO Commercial Property Conditions form (CP 00 90), which applies to most apartment building property policies.

When the vacancy clause applies, the consequences are significant. Coverage for vandalism, sprinkler leakage, building glass breakage, water damage, and theft is typically eliminated entirely. For all other covered perils, the claim payout is reduced by 15%. This means even if a fire occurs in a largely vacant building, the insurer will pay only 85% of the covered loss.

Vacancy concerns arise in several situations for apartment owners: during major renovations when tenants have been relocated, when a property is being repositioned and occupancy has dropped, during lease-up of a new building, or during extended periods of market softness. If your building's occupancy is approaching the vacancy threshold, contact your insurer or agent to discuss options. Some insurers will modify or waive the vacancy clause by endorsement, often for an additional premium. Vacancy permits or endorsements can maintain full coverage during planned periods of low occupancy. Lenders are also sensitive to vacancy risk: Fannie Mae's Multifamily Selling and Servicing Guide (Part III, Chapter 6) requires that property insurance remain in full force during any renovation-related vacancy and may require the borrower to obtain a vacancy permit endorsement.