A developer in St. Petersburg is ten months into a forty-unit apartment building when a hurricane tears off the partially installed roof and soaks three floors of framing and drywall. The builders risk policy pays to tear out and rebuild the damaged work. What it does not pay, because nobody added it, is the seven months of additional construction loan interest, the architect’s fees to redraw the affected floors, the extra property taxes and insurance, and the rent the building would have been collecting if it had opened on schedule. By the time the building is finished, those costs exceed the physical damage.
Those are soft costs. On a financed project they are often the larger part of a loss, and a standard builders risk policy does not include them.
What Soft Costs Are
Hard costs are the physical cost of construction: materials, labor, and equipment that go into the building. A standard builders risk policy is built around them, and it pays to repair or replace physical work damaged by a covered cause of loss.
Soft costs are the expenses that keep running when a covered loss delays completion. The usual categories are additional interest on the construction loan, extra real estate taxes and insurance premiums during the delay, additional architect, engineering, and consulting fees, permit and inspection fees that have to be paid again, legal and accounting costs, and the added cost of advertising and leasing when an opening date moves.
Closely related is loss of income, sometimes called delay in completion or loss of rents: the rent, sales, or business income the finished project would have produced if it had opened on time. On apartment buildings, hotels, and commercial properties this can be the largest single number in a delayed-opening claim.
Soft cost and delay coverage are added to a builders risk policy by endorsement. They are not automatic, and they have to be requested when the policy is placed.
How the Coverage Is Triggered
Soft cost coverage responds only when a covered physical loss causes the delay. A hurricane, a fire, or a theft that damages the work and pushes back completion qualifies. A delay caused by permitting problems, labor shortages, supply chain issues, a contractor dispute, or financing trouble does not, because there is no covered physical loss behind it.
The delay is usually measured against the scheduled completion date in the project documents. That makes the construction schedule more than a planning document. It becomes the baseline for the claim, and a realistic, documented schedule makes a soft cost claim much easier to support.
Waiting Periods, Limits, and Periods of Indemnity
Soft cost and delay coverage come with their own terms, and three of them shape what the coverage is actually worth.
The waiting period works like a deductible measured in time. A policy with a thirty-day waiting period does not pay for the first thirty days of delay, and some forms use longer periods. On a project where each month of delay costs a large amount in interest and lost rent, the waiting period is a meaningful number and worth converting into dollars.
The limit is a separate amount from the hard cost limit, and it should be built from the project’s own figures: monthly loan interest, monthly carrying costs, the professional fees likely to be repeated, and projected monthly rent or income once the building opens.
The period of indemnity caps how long the coverage pays. Twelve months is common, but a major loss on a large Florida project, especially after a regional hurricane when contractors, materials, and inspectors are all in short supply, can take longer to recover from than a twelve-month period allows.
Named Storms Change the Numbers
In Florida, the most likely cause of a soft cost claim is a hurricane, and hurricanes create delays that go well beyond the damage to one site. After a major storm, every project in the region is competing for the same roofers, framers, drywall crews, materials, and building inspectors. A repair that would take six weeks in a normal month can take four months after a regional event.
That has two practical consequences. The period of indemnity should allow for post-storm conditions rather than normal ones. And the named storm deductible that applies to the hard cost claim usually applies to the physical loss that triggers the soft costs, so both should be understood together.
Who Needs It
The owner or developer carries most of the soft cost exposure. The lender is paid regardless, which is why construction lenders frequently require soft cost and delay coverage as a loan condition and want to be named on it. Contractors rarely need it for their own sake, but a general contractor placing builders risk on an owner’s behalf should confirm whether the owner wants it included rather than assume it is not needed.
Soft costs matter most on projects that depend on financing and on income once they open: apartment buildings, mixed-use projects, hotels, retail centers, and commercial buildings being built for lease. On an owner-occupied custom home without a construction loan, the soft cost exposure is usually smaller, though additional living expenses during a delayed move-in can still be significant.
What to Confirm
Does the builders risk policy include soft cost coverage, or does it cover hard costs only? Is delay in completion or loss of rents included, and how is lost income calculated? Which categories of soft cost are covered, and are any excluded? What is the waiting period, and what does it cost in dollars? Is the soft cost limit built from the project’s own interest, carrying costs, and projected income? How long is the period of indemnity, and does it allow for post-hurricane delays? Does the lender require soft cost coverage, and is the lender named on it? Is the construction schedule current and documented?
Builders Risk and Soft Cost Coverage in Florida
Prestige Insurance Group writes builders risk for new construction projects in Florida, including soft cost and delay in completion coverage, and places the permanent property program that takes over when the project is finished.
Send us the loan terms, the construction schedule, and the project pro forma. Those three documents tell us what a delay would cost and how the coverage should be sized.
Call the office nearest you. Se habla español.
Miami: 305-969-8776 Orlando: 407-993-2331
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General information only, not legal advice. Soft cost and delay in completion coverage, waiting periods, and periods of indemnity vary considerably by carrier and form. Refer to your actual policy and loan documents for the terms that apply to your project.
