Six things you must check now if you are a landlord.
It’d be an understatement to say that the coronavirus has upended life and business as we know them.
This is serious. The experts are now saying that the new normal is that we might have to live with the Coronavirus for some time. That means that we must adapt how we live and do business to the new reality.
Insurance is one area where there will be a lot of highly focused and continued attention. Whether it's property insurance, liability insurance, health insurance, life insurance or even unemployment insurance, it will touch your life going forward.
In this article, we'll take a quick look at six insurance areas that are of crucial importance to landlords.
There are six specific areas of insurance that you need to look at now, before you need them. Here’s our list:
1. Business Interruption coverage (Loss-of-Rents).
This has been in the news for several recent weeks, ever since COVID-19 came into the national consciousness. Basically, this coverage is meant to replace rents (or business income) if the insured property is uninhabitable or unusable due to a covered loss. And therein lies the rub. Some landlords are questioning whether the pandemic is considered a covered loss. It turns out that specifically for loss-of-rents coverage, this is payable only when there’s physical damage to the property which renders it uninhabitable. If a unit is “liveable”, then the loss-of-rents coverage does not apply.
Our advice: Read your policy and make sure that your coverage is adequate. Keep meticulous records (rent receipts) so that if you do have a legitimate claim you’d be adequately compensated since any payout will be based on these records.
2. Vandalism and Malicious Mischief coverage.
This coverage is meant to address intentional acts of damage to physical property. While accidental property damage is covered by default, only by having a VMM rider, would intentional acts of physical damage be covered.
It is crucially important for landlords to be extra vigilant in this economic climate since some tenants might seek “revenge” due to frustration with their current circumstances. This is especially true if they perceive, rightly or wrongfully that a landlord is being unreasonable by demanding full rent or if they are served with an eviction notice. While it’s true that acts of vandalism are criminal and legally punishable, that wouldn’t help you repair your place if you’re hit with such an occurrence.
Renters Insurance: Another way to possibly mitigate this risk is to mandate that all your tenants carry renters insurance. Although it might be too late for any current (in-force) lease, for renewal leases, landlords might want to mandate that tenants purchase a Renters' insurance policy and name the landlord as an Additional Interest on the policy. Such Renters Insurance policies are relatively inexpensive, a couple of hundred dollars per year and they protect the tenant’s belongings as well as your property. If a tenant damages your property, intentionally or otherwise you may seek redress through the renter's policy.
Our advice: a) Review your landlord policy to see if you have VMM coverage. Many landlords reject this rider because it typically adds about ten to fifteen percent to the base premium. Now is not a time to ignore this threat.
b) Don't forget to investigate ways to mandate renter’s insurance for all your tenants. The “big“ guys have been doing this for years.
3. Vacant Property.
Most standard policies permit a thirty-day window of vacancy. It might not seem like a big issue, but if your property goes more than thirty days vacant, for whatever reason, and there’s a loss after the thirtieth day, the insurance company could refuse to honor the claim. The thirty-day limit might seem to be a huge hassle and landlords tend to ignore this stipulation. However, if you have a claim against a policy written for occupied property and the property was vacant beyond the time limit stated in the policy, you can bet that the carrier will most likely deny the claim, especially if it’s a sizeable claim.
Another thing to watch out for on vacant properties is the risk of attracting squatters and vagrants. This could be a huge drain on a landlord's resources becuase not only is there a loss of income, but there'd be the addtional costs of repairs to make the place habitable again.
But as worrisome as that is, an even bigger issue is that although squatters might be living in your place illegally, you could still be on the hook for any bodily injury they suffer. Now that's adding insult to injury. All insurance companies review bodily injury claims very, very carefully.
Our advice: Keep a strict eye on any vacant properties. If it appears likely that a property will be vacant for much more than thirty days, contact your insurance broker to see if a vacancy rider can be added or if your current policy must be replaced.
4. Tenant Legal protection.
A landlord’s greatest threat is that of being sued for any reason, but especially for wrongful eviction. With the economic turmoil unleashed by the reaction to the coronavirus, it’s likely that we’ll see an uptick in these types of lawsuits as tenants, either out of pure greed or mere desperation, try to extend their stay in their rented units.
Most landlords are aware of this coverage since it’s liability coverage and every landlord is keenly aware of the potential for a tenant lawsuit. The thing to note is that not all landlord policies provide tenant legal protection. Many commercial insurance policies include personal-and-advertising-injury clauses to cover this type of situation. But although personal lines policies might include this coverage, many do not.
Another relevant tenant issue, especially related to COVID-19, is the potential for lawsuits being filed by tenants who claim they were infected or were exposed to infection due to their landlord’s negligence. Although such suits are unlikely to prevail, nonetheless landlords would have to defend themselves which could be a costly proposition.
While we're on this topic, please check on two other areas of increased risk: pets and play equipment. WIth the increase in pet ownership even before COVID-19, the risk of pet-related suits has been growing. More folks being at home raises the potential for more pet-related disputes. So bear in mind that most policies either totally exclude pets, or at least restrict their breeds. Insurance companies closely adhere to a policy's restrictions. You should too. Landlords invariably get drawn into pet-related legal disputes because they are perceived to have deeper pockets.
Play Equipment - With playgrounds closed, it appears that some parents might be considering buying that trampoline or above-ground pool for the kids. The risks here are HUGE and obvious. Now would be an ideal time to remind tenants that doing so would violate the terms of the lease, if you've written that into the lease.
Our advice: Review your policy to see how best to get this coverage if you don’t already have it. There are several options available to get covered.
5. Unauthorized business activity.
One thing that typically happens in times of economic distress is that folks start numerous gigs and side businesses as a way of surviving. Most, if not all, landlord policies forbid business activity in rental properties. Now, to be clear, the type of business does matter. The type of business is more an issue than the fact that there is a business being run out of a rented unit. For obvious reasons, the risk of an accident and therefore a claim rises with any increase in foot traffic to the site.
Most insurance companies strictly forbid operating businesses at residential properties where clients must visit the rented unit.
For example, a business like a day-care center (especially an unlicensed one) or someone performing personal grooming (hairdressing/nails, etc.,) out of a rented unit, is usually not covered. However, if someone is a software developer or a billing agent, etc. and works out of their home, the need for clients to visit is minimal and that type of business tends to be OK.
So, you can imagine that if economic distress continues as indicated by the current unemployment trends, this is likely to become a huge issue. Landlords need to stay vigilant.
Our advice: Keep a very close eye out for this. If you have a property manager, make sure that they are aware of the potential for abuse that they and establish a plan to monitor property site activity.
6. TRIA – Civil unrest.
This relates to business and commercial policies more so than personal lines policies. However, all landlords need to be aware of the potential for property damage due to terrorism or civil unrest. This coverage relates to property damage sustained due to civil unrest, riots, demonstrations, etc.
Although it’s unclear how much of this sort of thing we’ll experience, it is not too much of a stretch to see the potential for an increase in such activity.
Our advice: Contact your insurance agent or broker to see about adding this coverage if you don’t have it or don’t know what it is.
Times have changed. Today, we ignore insurance policy details at our peril (no pun intended).
Paying attention to the issues above will help you keep your insurance claims to a minimum which will not only keep your future premiums down, but will dictate if you're even insurable.
This is not meant to scare you. It is is meant only to make you aware of the issues that might crop up with landlord insurance as it relates to COVID-19. Hopefully, it will help you, not only flatten, but stay ahead of the curve.