Investing in real property can be a smart decision. Property owners can keep their personal expenses lower by owning property that they need rather than renting it from others. In some cases, the property may generate revenue if the owner can rent it to others.
Not all real property holdings are residential. Many people choose to invest in commercial real estate as well. They may have acquired a space for their business to operate in or a large office building that they manage for regular income. Most real property owners carry insurance to protect them from liability and limit the losses associated with property damage.
What factors can quickly complicate insurance claims related to commercial property?
The value of equipment and other items
Commercial real estate offers space where retailers can display their goods for consumers, licensed professionals can manage their offices and companies can manufacture the products they intend to distribute to consumers. As such, commercial real estate holdings may include high-value equipment and resources. In scenarios where commercial real estate sustained significant damage, equipment or merchandise in the business could sustain damage as well. Quantifying the value of those damaged resources and connecting the damage to the property damage can be a challenge when filing a commercial real estate insurance claim.
Expenses related to operational interruptions
Typically, business owners and executives need special coverage to protect against operational disruptions. Business interruption insurance can cover recurring costs that businesses have to absorb while they are unable to operate for uncontrollable reasons. Property insurance may not necessarily cover the cost of business interruptions. However, the way that the insurance company handles the claims process can have a direct impact on how long the company cannot operate.
Insurance adjusters sometimes stonewall during claims, leaving businesses incapable of resuming operations indefinitely. Even if it means delaying the completion of necessary repairs, negotiating for a fair settlement is often more important than settling as quickly as possible.
The pressure of lease cancellation
When a commercial property owner rents space to tenants, they often include terms in the lease that allow for the cancellation of the rental agreement in certain scenarios. Inclement weather that damages the property and renders it unusable for an extended amount of time might trigger a force majeure clause. Landlords who rely on the income from their tenants could face legal and financial challenges when their tenants try to invoke their force majeure clauses or cancel their leases early. Particularly in scenarios where the timeline for repairing the property is months long, those who have invested in real property may need to brace for the potential of losing tenants.
Ideally, commercial property owners optimize their protection with robust insurance coverage and have help on hand when they need to file significant claims. Recognizing that there may be numerous secondary complications can help those with real property investments avoid mistakes that could undermine the fairness of an insurance settlement.