COVID ushered in a new workplace mentality – that of the hybrid or fully remote workforce. That has created new challenges for commercial office landlords, in both occupancy and insurance.
Add to that continued volatility in politics, the potential for vandalism, skyrocketing repair and rebuilding costs, and persistent threats to building systems from cyber attacks, and you have a very complex risk landscape.
We’ll discuss some of the most important coverages you’ll need to protect your commercial real estate investment.
Commercial general liability insurance is a keystone coverage for your real estate operations. Visitors, vendors and maintenance people can all sustain an injury on your premises. This liability policy provides broad coverage for the costs of investigating a claim, attorneys fees, and recompense to plaintiffs.
Personal injury claims are also covered by commercial general liability. For example:
- Wrongful eviction or wrongful entry into a tenant location
- Invasion of privacy allegations
- Advertising injury, including infringement of trade dress or the misuse of a competitor’s images or slogans
While all businesses need the broad protection commercial general liability insurance offers, you may need to go beyond that policy if you are also managing the property. Property managers, or property management, insurance is a policy specifically intended to help with financial harm stemming from failures in operating a building – things such as negligence or errors in decisions that cause property damage or injury.
Commercial property insurance for buildings and contents
Commercial property insurance offers protection for the most common hazards facing real estate office space. It helps pay for repairs to your buildings and replacement of business contents damaged by many adverse events. If you’re in an area prone to earthquakes or floods, your agent can offer options for additional coverage to protect you.
You may need to get an addition to your policy, called an endorsement, to cover glass, outdoor signage, and exterior structures and landscaping features. If you have a parking garage, talk to your agent or broker about its condition and security. And make sure you have ordinance and law coverage, which increases what the insurer will pay for upgrades to your building to bring it up to modern construction codes.
Key to good insurance property coverage is getting property valuations right. With property values rising and construction and supply costs up substantially, a review of your maximum payout limits is necessary. You wouldn’t want to get caught with a big claim only to find your policy was written with antiquated valuation of your property.
Vacancy, a defined term in property policies, can cause problems if a loss occurs in a partially occupied property. If you have low occupancy, you can face vacancy provision problems after a covered loss.
For example, your insurer may reduce your loss payment or eliminate coverage entirely for certain types of losses, such as those caused by vandalism or glass breakage. Collaborating closely with your agent, not just at renewal but throughout your policy term, can help you avoid valuation issues and the possible triggering of your property policy’s vacancy provision.
Note that, in some locations, coverage for riots and other types of civil commotion and social unrest may be excluded from your commercial property policy. This is an increasing problem for office building owners in some areas, so make sure to discuss it with your insurance agent or broker.
A businessowners policy may be right for you
For smaller office buildings, a businessowners policy (BOP) may be just what you’re looking for. Designed to protect you against most risks facing office locations, the BOP offers a bundled set of coverages, such as:
- Commercial property coverage, which can include business income insurance intended to protect your revenue stream after a covered loss
- General liability coverage, which helps pay for costs of legal defense and settlement of bodily injury or property damage claims arising out of your operations
- Equipment breakdown coverage, which helps pay to repair or replace your equipment and anything damaged by failed machinery
For larger office buildings with tenancies, a BOP can be an affordable way for your tenants to protect themselves, and you, against losses. You may be able to stipulate in leases that your company be included on tenants’ BOPs as an additional insured, which adds an important layer of protection for you should an injury or property damage occur due to a tenant’s negligence or actions.
Cyber insurance grows in importance
Because much of today’s property management, such as rent collection, has gone online, it’s important to explore cyber insurance. Cyber liability insurance can help pay for your legal defense and recompense to victims should an attack on your networks disclose financial or proprietary information of others.
You may also need first-party cyber insurance, which can help if your company experiences direct losses due to a cyber intrusion. Cyber policies are tailored for each business individually, so you may be able to get yours written to cover damage to air-handling systems, computerized security, and other building networks that are tied to the internet.
Talk to your agent or broker about collateral damage coverage as well so harm that stems from a network hack – such as activated sprinkler systems, elevator or escalator malfunctions, or even fire – are included.
Further insurance considerations
If you are undertaking an expansion or ground-up construction of an office building on a property you own, you have special insurance needs. Those include builders risk insurance, which you can purchase as the property owner or insist that your general contractor supplies. It covers property damage or financial harm that emanates from property damage, such as lost income and additional fees to lenders or the government.
An agent or broker familiar with commercial office insurance will help you through the entire process of covering your property and your operations. This will include getting appropriate appraisals of your building’s value, scheduling property inspections (whether in person of by remote means), and advising you on a comprehensive suite of coverages.
Those professional insights can help you build a program of protection for your commercial real estate investment that helps you qualify for loans, attract good tenants, and stay on solid financial footing.