Back in 2015, I thought I was doing good by investing in a large piece of rural “Vacant Land” that was 80 acres in size. I would in turn develop this property in order to build up the inheritance for my children. All the legal paperwork on this property indicated “Vacant Land”. Therefore, (I was told) that the liability coverage for the “Vacant Land” was covered under existing homeowners insurance. Then one year later, I was in for one heck of a surprise.
I was informed by the insurance broker that as soon as we put anything on the property, even an out house, it’s no longer considered “Vacant Land”. Therefore, it was no longer covered under the existing homeowners insurance. This meant that I needed separate individual liability insurance for the “Vacant Land” property. It took several months to get insurance put in place as some companies were unwilling to insure unless we purchased what is called builder’s insurance, which was over $5,000.00 per year!
I was obviously outraged by this and immediately started researching. I found that in some jurisdictions, if there is any kind of human alterations done to the property, the property is no longer considered “Vacant Land”. In one case there was a hydro pole on the property and therefore, no longer considered “Vacant Land”.
The scary part is that there is no standard definition of “Vacant Land” that is used across the real estate, legal, banking and insurance industries. When a person is searching for properties on various real estate publications they will come across numerous properties that are listed as “Vacant Land”. Yet, many of these properties will have some structures on the property. So, because these properties do not have any habitable dwellings on the property, the realtor will list the property as “Vacant Land”.
So the purchaser will go ahead and purchase this “Vacant Land”, only to find out later that in the eyes of the insurance industry, it isn’t “Vacant Land”. Unfortunately some people found this out by accident.
I read a couple of articles where a “Vacant Land” property owner was sued after someone was injured on their property. They thought that their property was covered under their existing insurance. Yet, because there was some kind of human alteration done to the property, the property owner was no longer covered.
Due to the significance of this I even submitted my concerns over a lack of a standard definition to various government departments. In one email that I got back, they indicated: “This is a tough one for me to wrap my head around. I guess at the end of the day the issue is can Realtors use the term vacant land as loosely as they are?”
Even the different emails that I sent to different realtors were shrugged off as they couldn’t provide a concrete definition either. When it comes to the different banking officials I spoke with, they indicated that a person can’t finance “Vacant Land”. However, when it comes time to build on that property, a person can use the value of that property as their down payment for their builder’s mortgage.
In the end I was finally able to get separate liability coverage for my “Vacant Land” and costing approximately one tenth of what I was quoted if I was forced to purchase the before mentioned builder’s insurance.
Therefore, before purchasing any kind of “Vacant Land”, look into what the separate liability insurance coverage would be for that property. DO NOT rely on how the realtor has the property listed as an accurate definition. After all, they are not the one’s insuring the property. As with any other form of real estate, ensure that this separate insurance goes into effect the same day as the closing date of purchasing that property to ensure that you are protected.
Until next time, stay safe, healthy and strong.
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