Wednesday, August 1, 2007

Insuring old buildings

Q --Who insures old buildings? We have purchased a building constructed in the 1880s and all insurance companies seem to be terrified of the structure. Most won't insure anything over 75 years old.We are setting up a ceramics studio on the ground floor and will be living on the second and third floors. We did find one company that will charge us an outrageous amount, but we'd like to find something friendlier.

A -- You don't have a problem, you have TWO problems: AGE and USAGE.

The first problem with older buildings is dealing with replacement cost. Most of them cannot be re-built, so either actual cash value or functional replacement is necessary. If a insurer only sells a replacement cost policy, you're ineligable.

The other AGE related problems can be dealt with by pointing out all updates done in the past 10-15 years:

  • Electric - modern three strand wiring with circuit breakers all up to code
  • Smoke & security alarms and other safety features inspected and up to code
  • Updated plumbing
  • Updated HVAC
  • Updated Roof
  • General good repair of entire building, surrounding area sidewalks
  • Sprinklers ? This would be a plus.

Show that these issues have been addressed and an insurer will more likely think of the building as a rehab, not a piece of history.

The USAGE problem is a little trickier. Old buildings are high risk, ceramic studios (if MAKING ceramics is involved ie ovens, heat, flames; retail stores no problem) are high risk, mixed residential and commercial are high risk. Trying to get all three together AND getting good coverage for all will be difficult at best.

Try breaking down the liability (as a disclaimer, I am not an attorney and laws vary from place to place, please consult the appropriate legal council).

  1. Establish an LLC to own and manage the building
  2. Establish an LLC for the ceramics business then rent from the building LLC
  3. Rent the top two floors from the building LLC as residential space (maybe buy as a Condo?)

Now get insurance coverage:

  1. Commercial building general liability (GL) and property coverage for the first LLC
  2. Business GL with contents or business owners policy (BOP) for ceramics business
  3. Renters/Condo coverage with endorsement for improvements to cover personal property

Ideally you get all three from the same company; this may be difficult, but possible. The three coverages are more comprehensive than one combined policy, and easier to place. Not cheap, but the best way to get insurance.


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