Securing your empty property

- Mark Cosh, European Director, SitexOrbis Limited, offers advice

All over Britain, and particularly in the areas most affected by the financial crisis and recession, otherwise competent and well-managed companies are throwing away serious money and taking enormous risks by failing to effectively secure, protect and maintain their vacant properties. Continuing company failures, mergers and emergency rescue packages have, since the middle of 2008, created more vacant buildings each month.

• BDO LLP reports that more than one in sixty UK businesses have gone bust during 2009.

• In October 2009, Begbies Traynor, the business rescue and restructuring firm, said 134,000 businesses still showed "material signs of distress" and that “a deluge of business failures is likely in 2010."

• The number of vacant properties created between summer 2008 and autumn 2009 has run into many thousands – some forecasters expect the total to have increased to 135,000 by the start of 2010 – and that’s just in the commercial sector (Source: FM World).

With the number of vacant buildings growing all the time, the potential for significant fallout is mounting.

With this in mind, many facilities managers find that they now have a number of vacant properties in their portfolios for which they have incomplete insurance cover because of the building’s change of status, and many will have inadequate knowledge or experience to call on to manage it properly and tackle legal issues that arise when commercial properties become vacant. A landlord’s statutory obligations remain exactly as they were when the building was in full use, even when a property is empty and nobody works there. It is therefore critical that property managers continue to adhere to health and safety, duty of care and building insurance requirements even for sleeping buildings.

That can pose problems, particularly in the area of insurance. When a building is unoccupied, the risks of malicious arson, criminal damage, squatting and other criminal activities are dramatically increased, and some insurers now specifically exclude cover during periods when buildings are vacant. Obtaining new insurance for a building that has become vacant can be very difficult unless you have professional security advice and support.

Many owners of vacant property do not employ professional surveyors to assess the risks and define the most cost-effective approaches to vacant property security and surveillance. As a result, some landlords pay excessive amounts for security that they do not need or for necessary security that could be provided more cost-effectively. New technologies developed in the last year or two can provide the security and audit trail that insurers of vacant property need, yet actually cost less than old-technology approaches to the problems. New forms of cost-effective access control create electronically a full record of all legitimate entries and exits, with an audit trail of keys used and the time for which the user was inside the premises.

All the services

Because of the difficult situation in which so many companies with empty buildings find themselves, my company has developed a full range of security and property protection services and products that meet just about every need that landlords of vacant property can encounter, all from one organisation. This concept helps landlords, especially those whose companies are not large enough to have their own specialists on the staff, because all the different professional disciplines are on hand to tackle the problems and devise appropriate strategies to meet the customer’s needs at the least cost.

The company’s expert security surveyors are able to recommend to any landlord the most cost-effective approaches to securing, maintaining and monitoring property, so that it is in a suitable condition for letting as soon as a potential tenant comes along. If the building is afflicted with mould – common in unoccupied premises – the mould eradication team can identify the species of fungus involved and apply appropriate scientifically proven techniques to permanently eliminate it. If the building has been occupied by squatters, or illegally used as a venue for raves, the graffiti and other damage can be professionally dealt with, and further intrusions can be prevented. On-line progress information on security work, uploaded within the company frequently and quickly, is available to customers in real time, enabling you to monitor progress with an accessible audit trail. You have full control of the situation. SitexOrbis also provides 24/7 protection against arson and criminal damage.

Unfortunately, many landlords, or their agents, leave a vacant building inadequately protected for too long before professional advice is sought. SitexOrbis teams routinely see sleeping buildings that have reached crisis point and are highly vulnerable to environmental deterioration, theft, malicious damage, burst pipes, graffiti and anti-social behaviour. The sad fact is that urgent action tends to cost more than timely action, particularly if the building has fallen into a degree of disrepair, has had its windows broken and has become damp.

So what is the solution?

The first step is to evaluate the number of vacant properties in the business and to determine what is required and intended for each. Appropriate people must be given clearly defined responsibility for understanding the insurer’s stipulations and for putting the agreed strategy into action. Vacant property management is an expert job best managed centrally in-house or by a single external provider who can meet all security requirements under one roof and provide the authorised audit trails that insurers nowadays require.

Neglected vacant properties are a catalyst for crime and pose an environmental hazard. Without proper maintenance and security, the value of the property may be undermined. At times of economic downturn, the level of crime increases by approximately 25% (Source: Merseyside Police Crime Statistics) and in the past two years ACPO has estimated that metal theft from buildings has risen by 150%. If you don’t secure it, you may even lose your asset’s assets. When properties become vacant, the change of status can make previously suitable insurance policies either invalid or incomplete, particularly in respect of public liability

– and this is in a world where there are websites, managed by squatters who advertise vacant properties and even post photographs taken during their exploration of the premises. This constitutes a real financial risk, since in 2005 a trespasser was awarded £600,000 in compensation for injuries gained whilst on an empty property (Source: The Times). Your duty of care even extends to visitors who should not be there.

Vacant properties also have a negative impact on communities and the surrounding area. So, as well as legal and financial considerations, businesses also have a moral duty to look after their properties. The good news is that a comprehensive solution often costs less than using a multitude of suppliers who each handle part of the solution.

The ultimate goal has to be to retain and maintain the assets of commerce. Recession and its inevitable aftermath will not last for ever, indeed, reports just published by property consultants Colliers CRE and CB Richard Ellis show that commercial property prices rose sharply during autumn 2009, with values rising 2% in October alone. Vacant property, whose management is in one sense a liability now, will return to its rightful position as a valuable asset when the economy improves and property can be once again let and generate income.

Concentrate on what you are good at

It really does pay to leave vacant property management to experts who understand the problems, know the detail of the law, are familiar with insurance stipulations and the cost-effective ways of meeting them and who have the services available to identify and rectify problems, provide security against the threats posed by modern society and maintain surveillance as necessary. Handling vacant property management in-house is certainly possible, but few companies can afford the range of staff necessary to tackle the whole task effectively. That inevitably means that outside services will have to be called in to advise on and rectify problems. The cost of piecemeal rectification, especially if the choice of contractors is governed by price rather than evaluation of expertise, added to the overhead cost of the department hiring them will almost certainly exceed the cost of giving the contract to experts in the first place.

Professionally managing vacant properties to minimise risks, maintain security and prevent deterioration requires expertise and ongoing investment. If managed in-house this can be a drain on the business in terms of cost and can divert attention from day-to-day operations.

In-house purchasing from a multitude of suppliers can in fact spell disaster. With multiple suppliers, the company not only lacks an overall view of what is being done, it can also have, far more importantly, no clear picture of what is not being done. Too often, essential maintenance and security work is overlooked, mismanaged or not routinely checked, while often costly, but irrelevant, measures are put in place due to the inexperience of those involved. With the effects of recession causing a rise in the number of vacant buildings, the problems associated with property mismanagement are likely to get worse.

Perhaps most worrying of all is the fact that insurance companies are getting tough when things go wrong and pushing up their premiums to cover the increased risks. Vacant properties are at a greater risk of fire damage, vandalism and break-ins and there is an obligation to inform insurers when a building becomes vacant. If you choose not to adhere to the unoccupancy conditions of your insurer, you may face the following:

• Restriction in cover (e.g. exclusion of burst pipes)

• Higher excesses imposed

• Complete withdrawal of cover

• A breach of loan agreement

• A refusal to pay a claim

• Higher premiums

and, while there is a growing number of claims, more are being rejected due to shortcomings in security and property inspections.

According to the ABI*, commercial fire damage claims have increased by nearly 20% over the past two years, rising from £365m in the first half of 2007 to £424m during the first half of 2009. In 2008, the total cost of fire damage reached £1.3bn: £3.4m for every day of the year.

Meanwhile, AXA’s business crime index this year showed that arson in the commercial sector increased by 23% in the second half of 2008. It is widely predicted that these figures will have climbed further by the time this year draws to a close. More worryingly, one major insurance company’s property risk manager believes that 40% of all commercial fires are now arson related.

Urgent action needed

Companies with vacant commercial property must act urgently to tighten their procedures and ensure that all necessary action has been taken to meet their insurer’s stipulations, if they are not to risk having their insurance claims rejected or falling foul of the law.

Anyone who would like further advice is welcome to contact me, Mark Cosh, on 01895 465500 or visit www.sitexorbis.com

ENDS

* Source Insurance Times, 5th November 2009

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