Commercial Real Estate Insurance & Replacement Insurance Loopholes: Reconstruction Costs

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Real estate insurance policies often include replacement insurance terms for the reconstruction costs of repairing or rebuilding real estate property after a catastrophic event such as a fire or flood. But many commercial real estate investors may have a false sense of security about the range of costs that may or may not be covered by their real estate insurance policy.

When a catastrophe occurs, you might be shocked to discover that replacement insurance excludes a significant portion of reconstruction costs. If you’re investing in real estate or buying real estate, a Texas real estate lawyer can help you evaluate your risks and advise your commercial real estate insurance policies so that you know what will be covered.

Real Estate Insurance Exclusions for Replacement Insurance

Replacement insurance policies often exclude coverage for potentially huge reconstruction costs that can be attributed to “code compliance” costs. Essentially, the replacement insurance policy only pays for expenses that restore the building to its former specifications – the extra costs incurred to comply with current building codes will not be covered by your real estate insurance policy. Turning to an insurance litigation attorney after the fact is of little use. Instead, get advice beforehand from a commercial real estate lawyer to help you understand the complex language of your Texas real estate insurance policy and make sure you know your risks and coverage.

Hedging Commercial Real Estate Investment Risk

Investing in commercial real estate typically has greater vulnerability to the risks of replacement insurance when the policy covers older real estate. The excluded costs may include ADA compliance, sprinkler systems, plumbing and electrical systems, new structural and earthquake standards, etc. For some commercial real estate investors, this risk can be significant. With assistance and advice from a Texas real estate attorney, commercial real estate owners must make realistic assessments about the condition of their properties, the potential cost of code compliance, and develop real estate investment risk hedging mechanisms.

Our business law firm advises clients in commercial real estate matters and provides Texas real estate attorney services to clients who are investing in real estate, buying real estate, and selling real estate. Call our Texas law firm today to talk to a commercial real estate attorney.

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