Lessors Risk Insurance for Office Property in Memphis, Tennessee

What actually leases as office space in this city

Office space in Memphis is three unrelated products sharing one word. Downtown and along the riverfront edge it is frequently a floor in a low-rise brick block, or a deck inside a building raised to hold goods rather than desks — taken by a tenant who wants the timber and the light, and read by an underwriter who sees a frame from one century carrying services from another. East Memphis, the ground around Ridgeway and the parks strung off Nonconnah hold the purpose-built stock, which is closer to what an owner from another market pictures when the word office is used. Past those, much of what gets leased and reported as office space is the office block on the front of a light-industrial shed: suites at one end, loading doors around the side.

That last one is where a placement most often goes wrong, because the office half and the working half are one insured building and almost never one risk. The sprinkler protection over the suites was designed for the commodity the rest of the structure was built to hold. Partitions, suspended ceilings and the air handling serving the front block are a fit-out inside an industrial shell rather than a part of it, and the limit was usually set against the industrial envelope that houses them. So when the suites go quiet and the freight side keeps running, the owner reads the building as busy and the policy reads the premises as described — and those two readings are not obliged to agree.

The converted floors near the river invert the usual arithmetic. Brick and heavy timber are the cheap, durable part of such a building; the money is in what was threaded through it afterwards — the mechanical plant, the risers, the glazing, the cabling and the floors laid over it to turn a storage volume into somewhere people can work. On a building bought as a shell and fitted out since, the amount insured frequently still describes the shell. Two lettings later nobody has revisited it, and the shortfall stays invisible until a claim large enough to test the number arrives.

What fills these buildings also decides how they empty. Demand for office space here leans on freight, distribution and a large hospital district rather than spreading across many industries, and occupiers of that kind take whole floors and whole buildings rather than single suites. The practical result for an owner is that vacancy in this stock rarely arrives gradually. One consolidation, one lease not renewed, and a building that was fully let last month is dark on every level at once — secure, serviced, in good order, and unoccupied by every test the policy applies.

Plant of one age, ground that moves, and floors nobody walks

A building converted in a single program receives its entire mechanical system on the same day. Chillers, air handling, switchgear, controls, the elevator and its machine room all begin their service lives together, which is comfortable for the first stretch of that life and expensive afterwards, because they reach the end of it together too. Set that against a cooling season here that runs long enough to leave the plant very little rest, and equipment breakdown stops being a line an owner adds for completeness. On a building whose structure will outlast everybody now reading its lease, it is the coverage most likely to be called on.

The ground is the other thing owners from elsewhere discount. What shaking does to an office building is a systems event before it is a structural one: elevators come out of service and stay there until an inspection has been made and the certificates reissued, fire protection has to be proved intact before floors reopen, and rooftop and penthouse equipment is held down by whatever anchorage the last replacement contractor used rather than by anything a drawing records. A building can come through visibly sound and still be unusable. The interruption is then measured by the pace of those sign-offs rather than by how the finishes look, which is a longer clock than most owners have in mind. Whether shake damage is answered at all is its own decision on a commercial policy rather than something the property section supplies.

A partly let office building is where an occupancy condition does its quiet work. The clause is read against the whole of what the policy lists, not against the two floors that have people on them, so a mostly unlit stack can pass a line nobody inside it decided to cross. In this city there is a second problem stacked behind the first. Cutting the running costs of a mostly empty building means taking floors off the plant’s schedule, and a wet sprinkler system on an unconditioned floor is exactly what an ice event of the kind this market does get will find first. Heat held or systems drained is an ordinary property-policy requirement; a central plant turns it into something a person has to decide, floor by floor, instead of something that simply happens.

Re-letting is where the improvements question comes back around. A floor seldom goes to its next occupier as the last one left it, and in a market that competes on how ready the space is, the owner is usually the one paying for the work. Every round of that changes what is installed in the building and therefore what has to be insured, so lease by lease the schedule drifts away from the building it is meant to describe. Whether that work passes to the owner the day it is fixed in place or only once the tenant hands the floor back is a lease question with an insurance answer attached to it, and it costs almost nothing to settle while there is nobody in the space to argue about it.

The code chapter that reads like your problem and is not

One chapter of this city’s published code is headed in a way that makes it look decisive about an empty commercial building, and it is what a search turns up first. It was read to the bottom before anything on this page leaned on it. The obligation inside belongs to a mortgage holder, and the property it operates over is somebody’s home — two limbs, and an office building let entirely to commercial tenants misses both at once. That is worth saying plainly rather than hedging, because an owner who reads only the heading walks away believing a duty applies to them that the text underneath never reached. What that finding establishes, though, is bounded to the one chapter. Nothing here has examined what else this city may require of somebody sitting on unused floors, and no sentence above should be read as settling that in either direction. If the question is live on a building you actually hold, it is one for the city itself and for counsel you retain — not one a heading can answer.

The local picture for this city sits on the Memphis page.

Where to go next

• How office property risk works generally
• Everything local to Memphis
• What Tennessee law says
• Mixed Use Property in Memphis
• Retail Property in Memphis

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The lines that answer this exposure

Where an office floor is as likely to be a converted storage deck or a suite block bolted onto a warehouse as it is to be purpose-built, the exposure follows the mechanical plant and the fit-out rather than the address:

• Business Income & Loss of Rents
• Commercial Property
• General Liability
• Commercial Umbrella
• Tenant Discrimination