COVID-19 and social unrest have converged to create a serious dilemma for real estate owners. Just when business outlets were ready to re-open post-COVID, riots across America’s urban centers slammed the doors shut once again.

Sales of products and goods are no longer the only issue. Safeguarding the physical building has taken center stage.

For building owners relying on a Triple Net Lease agreement with enterprise occupants to insure their building, the liability is great.

In a Triple Net Lease, the occupant assumes the responsibility for placing the property policy in exchange for netting down the rent. In good times, building owners appreciate a Triple Net Lease partnership as they collect lease money without having to maintain and worry much about the building. Big-box retailers, like Costco or CVS, for example, benefit too, as they obtain more robust property coverage due to economies of scale.

But, what happens when a big-box retailer in a Triple Net Lease has to close its doors, or leaves the property suddenly vacant? In this scenario, the building owner is often left without a renter or their Triple Net Lease insurance policy that once covered the property, as well as an increased chance for vandalism, water damage and break-ins.

When a building is vacant for 60 days or less, in a standard Triple Net Lease policy, coverage is no longer valid for water damage, theft, mischief and vandalism, sprinkler leaks and more.

Triple Net Lease Solutions in the Post-COVID era

Use the following checklist as a guide to determine coverage options for a Triple Net Lease building:

  1. Confirm if property coverage is still in place and is paid in full at the location in question. To do so, go back to the tenant. If that’s not possible, reach out to the policy broker directly.
  2. Find out if the property policy has a vacancy or unoccupied clause. If so, the clause will specify when coverage will cease following a certain number of days of the building lying vacant or unoccupied.
  3. Prevent the property’s vacancy or unoccupied clause from taking effect by:
    1. Reinstating regular maintenance
    2. Monitoring the sprinkler system and other building equipment
    3. Hiring a security guard to monitor the premises regularly
    4. Installing an alarm system to secure the premises
    5. Engaging sensors for entry and exit points
    6. Enlist a real estate broker to have showings for potential new tenants
    These steps will ensure the insurance carrier that the building is being taken care of and will prevent the vacancy or unoccupied clause from denying coverage.
  4. If coverage is still valid, make sure to obtain verification in the form of a revised certificate of insurance stating that there hasn’t been a reduction in coverage either due to COVID or the vacancy.

Should the Triple Net Lease be broken, building owners will need to start insuring the building – effective immediately.

The solution is a regular property policy. If you anticipate the property being in vacancy for a while, make sure your broker has the vacancy or unoccupancy clause modified or waived to prevent issues down the road.

Contact your HUB Real Estate expert for more information on navigating Triple Net Lease insurance coverage in today’s real estate market.