As a landlord, you may try your hardest to only rent your property to trustworthy and responsible tenants, but accidents can happen regardless of precautions taken to avoid them. A pet can bite the delivery person, a leaky roof can cause a slip and fall, or a party can leave damage in its wake. From major to minor accidents, landlord building insurance is the only solution to protect yourself from a hefty bill or worse, a lawsuit.
If you’re a responsible rental property owner, you probably already have landlord liability insurance. But are you fully covered? When it comes to landlord liability, are you leaving yourself exposed to avoidable risks?
Know the Risks
Beware…Personally owned properties put your personal assets at risk. If you find yourself in the midst of a legal claim, your savings, your equity in a business or other property, even a portion of your future earnings can be taken to pay for it. And if you have a partner, you’re at risk for the entire amount of the claim regardless of your partnership “percentage.” While you may be thinking that your landlord protection insurance would cover you if you end up forced to pay a lawsuit award, the fact is, it just may not be enough. The dollar limit of your policy can leave your personal assets exposed to the uncovered portion of that award.
Limit the Risks
One of the best and most cost-effective ways to reduce the landlord liability risks of rental properties is to form a limited liability company (LLC), corporation or other limited liability entity to hold your property. According to Michael Gutman, an experienced business and property attorney, “When you hold property as a sole proprietor or in a general partnership, you’re dealing with risks each and every day. And eventually, you’re going to find yourself in trouble.”
Can You Require Tenants Liability Insurance?
You absolutely can make tenants liability insurance a condition of the lease. When it comes to protecting yourself and tenant, it’s really a win-win. Many tenants don’t realize that the landlord building insurance only protects the physical building not personal losses. If your tenant’s home is burglarized or vandalized, you run the risk of losing a good renter who can’t afford the rent after replacing their belongings. And you also run the risk of wasted time and money in small claims court if they try to recoup their losses. There’s no doubt about it, tenants liability insurance can be a lifesaver.
“Not only can landlords insist that tenants maintain various types of insurance coverage, they can require those policies to cover the landlord, said Michael Gutman. “A thorough lease agreement and appropriate insurance coverage will best serve the interests of both the landlord and the tenant.”
Your Tenant, Your Lawsuit
The actions (or inactions) of your tenants can put you in the middle of a lawsuit. It’s quite common for a tenant to simply not communicate issues going on with the rental property. Other times, an innocent situation can lead to injury. Like a sprinkler near the sidewalk tripping a walker-by. You could be held liable if that walker-by gets injured, even if it wasn’t your sprinkler. Or let’s say your tenant snuck in a pet in spite of a no-pet clause in the lease. You’re also responsible for any harm that pet causes to other tenants or guests. But there is a fine line between tenant liability and landlord liability.
According to Michael Gutman, “Victims tend to sue everybody to protect themselves. It’s imperative for a landlord to have the appropriate coverage because a trial can result in significant legal fees.”
Reach Out to Your Insurance Agent
Don’t assume you’re protected just because you purchased a landlord liability insurance policy. Speak to your insurance agent, go over the landlord building insurance coverage line by line and make certain you’re getting the best level of protection for the best price.