A Nova Scotia couple faced the landlord nightmare of a lifetime when they discovered the condition of their rental property – a mess so egregious that the news agency videotaping it warned that viewers may find the images disturbing. To make matters even worse, the tenant damage is not covered by insurance.
Worse than a Horror Movie
One landlord, a 10-year veteran, says it was worse than a horror movie. According to the news report, the damage was discovered after a neighbor complained about the smell emanating from the unit. It took two weeks to find a cleaning company willing to tackle the unsanitary conditions. It may take months and more than $60,000 to restore the unit.
To make matters worse, the landlords discovered their insurance doesn’t cover the cost. Their message to other landlords: check your policy.
Landlords and Property Insurance
While a landlord nightmare of this magnitude is rare, many landlords are unaware of where they stand with their insurance coverage until it’s too late. Most homeowners have basic property insurance, but some do not update their coverage when they bring in a renter. When the property becomes a rental, that changes the risks, and landlords need to understand their financial vulnerabilities.
The typical landlord policy for a rental property covers two components:
Damage to the property from events like fire or storms; and,
Liability for the landlord’s negligence in the event someone is hurt on the property.
An additional rider may be available to cover lost rent.
The cost and the coverage available may depend on the type of property, such as single-family home versus condo. The mortgage holder may require specific insurance coverage, typically lost rent coverage, so property owners should check those terms as well.
Provisions meant to Protect
The provisions of the individual insurance policy dictate what is a covered loss, and what the policy will pay out. For instance, the policy may exclude certain acts of nature, or pay out the actual value, not the replacement cost. A common exclusion is interior water damage, which is the leading cause of income loss, although coverage may be available as an added rider.
Likewise, a policy may not cover damage caused by intentional actions, like theft or vandalism. If the event is not covered, the lost rent provisions also may not apply, so it will be imperative to complete repairs and get the property back into service as soon as possible. That may require savings or a line of credit.
A landlord can encourage tenants to purchase renters insurance which covers their possessions, and a rider that covers the tenant’s negligence. Typically, that rider does not cover intentional or criminal acts.
To avoid these gaps in insurance coverage, landlords must be picky about who they allow to live at the property. Always evaluate a prospective tenant’s rental history by speaking with the current and previous landlords and asking about how well the tenant cared for the property.
One of the most important steps in property management is to perform regular property inspections. These routine inspections generally are performed every 2-4 months throughout the entire tenancy. Property inspections are the best way to reveal damage early and minimize income loss. Landlords who are not comfortable performing these inspections can hire a property manager or a property inspection service, like Canadian Tenant Inspection Services Ltd. It’s worth every penny.
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This post is provided by the Landlord Credit Bureau to help landlords and property managers reduce the risks of rental income loss and avoid rent theft. The Landlord Credit Bureau provides articles on Reporting Tenant Rent Pay and Tenant Screening to ensure necessary information is readily available to all Landlord & Tenants.
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The information provided in this post is not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.