Protection of unoccupied or void properties

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1 Real Estate Issue one Protection of unoccupied or void properties Introduction The current economic downturn has lead to a greatly increased number of vacant properties. In some countries rates of unoccupancy have now reached levels not previously experienced. Empty retail units on any typical town centre high street are the most visible evidence of this. In the residential sector many planned new developments have been suspended or mothballed partly completed. For the property owner unoccupied buildings lead to reduced revenue due to: lower rents, requests for rent free periods, Unoccupancy also brings increased risks to the real estate portfolio arising from: theft and theft damage to buildings, malicious damage, arson, weather related losses (eg. arising from reduced maintenance, damage not being noticed in the early stages), injuries to trespassers, especially children. uncollectible rents from tenants in financial trouble.

2 Definition Zurich s definition of unoccupied or void properties is: Properties in the form of buildings or parts of buildings which are unoccupied, void or where the business is out of service. Also, large multi-tenure properties such as shopping centres or office complexes having just a few empty units are not normally classed as unoccupied. However, the situation would obviously differ if the majority of units were empty. Buildings under construction, and those undergoing renovation or refurbishment, are not usually considered to be unoccupied for insurance purposes. Insurance issues The insurer s view of an unoccupied property may well vary depending on the particular circumstances of the case in question. A modern prestigious office block in a good location with no previous history of problems would generally be looked upon more favourably than, for example, an old run-down industrial building in an isolated location where there was known to be a high crime rate. expected to be vacant for a relatively short period, it is unlikely the insurer would insist on enhanced security in the form of boarding up doors and windows as this would deter prospective new tenants and hamper prospects for letting. However, measures such as boarding up may well be necessary for the old run-down building where the prospects of early letting are low and the property is likely to remain unoccupied for an indefinite period. In the case of the office block, if the property was actively being marketed to prospective new tenants and was only Guidelines for protecting unoccupied buildings While each type of property may have its own unique exposures, there are general guidelines that real estate owners and managers can adopt to prevent or mitigate the hazards to protect their vacant buildings. In addition to the damage and theft aspects, the health and safety of visitors, welcome or otherwise, should also be considered. Unoccupied buildings can be an attractive playground to children and a duty of care is owed to them even though they are trespassing. The following are general guidelines for protecting unoccupied buildings: Communication Notify, as necessary, the local authorities and public emergency services, including the local Police and Fire Service, that your building is unoccupied. Provide them with contact information in case of an emergency. Also inform the local authorities if access to the site has been altered or blocked (eg. for perimeter security), and if any changes have been made that may impinge on fire escape routes for neighboring premises. Inform your insurance company that you have a vacant building. Review your policy to ensure your vacant building is properly covered. Advise your alarm company of the vacancy, create new alarm codes and update contact information. Talk to other building owners in the area and ask to be notified in the event of an emergency. Suspend mail and delivery services to the building and ensure that the letterbox is sealed. Advise utility companies of the vacancy. If services are to remain live, ask to be contacted in the event of unusually high usage or emergency.

3 Security Doors and windows Ensure all external doors are of solid construction and that all frames are securely fixed to the building fabric. If not consider replacing them or reinforcing them with sheet steel. Fit good quality mortice deadlocks to all external doors, other than designated fire escapes. Fit good quality closed shackle padlocks together with manufacturers matching locking bars to any folding, sliding and roller shutter doors. Ensure all external windows are in good condition with all opening sections adequately secured. Where necessary, or where required by the insurer, fit substantial boarding to protect vulnerable glazing in windows, doors, skylights and other openings. Boarding should be exterior grade plywood at least 19mm thick secured to the window and door frame with a minimum of 50mm exterior quality non return screws. (Note: metal weld mesh grilles such as Expamet can be used as an alternative to boarding). Roofs To prevent the theft of lead, consider restricting access to roofs by installing anti-climb paint to drain pipes and roof guttering. The paint should not be applied below 2.4 meters and warning notices highlighting its use should be prominently displayed. Consider security-marking metals such as lead. A range of products are available for this (Zurich can supply details if required). Where relevant, carry out regular checks of roofs to ensure that any theft of roofing materials is discovered quickly in order to minimise the risk of subsequent damage by rainwater ingress. Perimeter security Where practical consider fully enclosing the site with a security fence. In some countries a type of enclosure known as a site hoarding is commonly used for this purpose. Ideally the fence/hoarding should be at least 2.4m high. Entrance gates should be of commensurate quality and height to the fence/hoarding. Security lighting Assess security lighting and improve the quality and coverage if necessary. Electronic security systems If not already installed, the installation of an intruder alarm system should be considered. A well designed, installed and maintained intruder alarm system can prove an effective security measure, deterring potential intruders and offering early warning of intrusion. Consider installing remotely monitored closed circuit television (CCTV). Manned guarding Review the need for security guarding. Depending on the nature of the premises, this may need to be a permanent guarding presence based on site, or by visiting patrols. Services All services and any fuel supplies to the premises should be shut off at the main switch or stopcock. Gas, electricity and water supplies should be turned off (unless essential for maintaining heating, fire protection or intruder alarms). All non-essential parts of the water installation should be drained to reduce the risk of freezing in Winter (ie. pipes, tanks and cisterns). Fuel oil tanks to heating systems and the like which are to be isolated and those containing other flammable liquids or combustible waste should be drained and made safe from potential explosion risk arising from residual vapors. They should also be secured to ensure there is no risk of children being able to get inside.

4 Maintenance and inspection It is important to ensure the general fabric of the building is maintained in good condition. Without regular maintenance an unoccupied property can quickly become run-down and attract the unwelcome attention of vandals, fly-tippers and the like. Experience indicates that once a vacant building has been attacked, further repeat attacks often occur within a short space of time: Regular inspection visits should be carried out (at least once a week) together with regular maintenance of the property. Leaks can be prevented by checking and keeping the gutters clean and insulating pipes. Ensure any sump pumps are working properly. Where practical, ensure fire and security systems are maintained and operational to help reduce the risks of criminal attack. Graffiti should be removed and any damage repaired without delay. Non ferrous metals such as copper and lead have been particularly targeted by thieves, with many losses involving theft of cabling, pipe-work, sanitary fittings and lead from roofs. Where practical, consider removing any non-structural or non-essential items of this nature and taking them off-site for safekeeping while the building is vacant. Management of combustible contents and waste Combustible contents and waste materials provide fuel for arsonists and can be a temptation to thieves: As soon as the property owner is made aware the premises have been vacated any combustible contents and waste materials left by the tenant should be removed from the premises and cleared from the site. External areas around the building should also be similarly cleared to ensure they are free from combustible storage and waste. Management of combustibles should be checked as part of the routine inspections. Fire protections Where practical, keep all sprinkler, fire protection and automatic fire detection systems in service. Carry out weekly checks of the sprinkler control valves, fire extinguishers, hoses and any other fire protection equipment which has been retained during the period of unoccupancy. Test all local fire alarms quarterly to ensure they are still working. Ensure any remotely monitored alarms are working correctly and that emergency procedures are up-to-date. As necessary, operate background heating to prevent freezing of fire protection equipment (ie. water supply tanks, sprinkler pipes, etc.). Health and safety Authorized visitors such as surveyors, guards, contractors and prospective purchasers/tenants will need to have access to the properly at various times. To ensure their safety is not placed at risk while undertaking their duties, the following points should be considered: Warnings should be given to highlight any specific dangers (eg. fragile roof or other structural defects). Adequate lighting should be made available. Barriers should be provided around dangerous or unsafe areas. Details of those visiting the premises should be recorded. Ideally visitors should not enter a vacant building unaccompanied. They should always carry a means of raising the alarm (eg. mobile telephone).

5 Zurich HelpPoint Unoccupied buildings can present any number of problems for the real estate owner and property manager. It would be prudent to engage Zurich and their Risk Engineering team as soon as it is known that a building has become or is about to become unoccupied. We can assist in the assessment of risk and advise on the most appropriate protection measures. This will help reduce the total cost of risk and help eliminate the potential requirement for additional loss control measures to be installed retrospectively. As the leading Global Real Estate insurer Zurich has a deep understanding of the Real Estate business and a market leading Risk Engineering team that can help real estate companies identify and manage risk. If you have any questions regarding this document or would like to know more about how Zurich Risk Engineering can help you identify and manage risk in your business please send them to: realestaterisk@zurich.com A02 (05/10) ZCA (unoccupied properties) The information contained in this document has been compiled and obtained from sources believed to be reliable and credible but no representation or warranty, express or implied, is made by Zurich Financial Services Ltd or any of its subsidiaries (the Group ) as to their accuracy or completeness. Some of the information contained herein may be time sensitive. Thus, you should consult the most recent referenced material. Information relating to risk engineering is intended as a general description of certain types of risk engineering services available to qualified customers. The Group and its employees do not assume any liability of any kind whatsoever, resulting from the use, or reliance upon any information, material or procedure contained herein. The Group and its employees do not guarantee particular outcomes and there may be conditions on your premises or within your organization which may not be apparent to us. You are in the best position to understand your business and your organization and to take steps to minimize risk, and we wish to assist you by providing the information and tools to assess your changing risk environment. In the U.S., risk engineering services are available to qualified customers through Zurich Services Corporation.