Multi-family Property Insurance – Landlords and Tenants (part 1)
Multi-family Property Insurance
There are mainly three kinds of multi-family housing ownership: Landlords and tenants, condominiums, and cooperative ownership. In this part, we will first address insurance issues related to the landlords and tenants. In our next blog, we will explain about insurance issues pertinent to condo and Co-op communities.
“Landlord” (a/k/a “owner”) is defined as an owner of a building and the owner’s agent. “Tenant” refers to the individual(s) leasing a living space in a building.
A landlord’s ownership interest and insurance coverage
The owner of a multi-family property or an apartment structure owns all of the building property including individual dwelling units therein. A tenant leases the right to use a dwelling unit, but does not own the structure or any of the building’s components or the rented dwelling space.
The landlord takes out insurance to protect the property including rented units, against “perils” such as fire, windstorm, sewer backup, flood, earthquake, and other hazards. The best option for coverage is special form.
Building structure and permanent fixtures in dwelling units
A building owner owns the entire building structure, including fixtures, systems and load bearing walls, and takes out a standard commercial property insurance policy. Such policies cover designated structures, internal and external fixtures, permanent fixtures in dwelling units, landlord’s machinery and equipment (such as HVAC units,) and personal property used to maintain the structure and premises.
Increased Cost of Construction – replacement cost insurance fo a building owner
To upgrade undamaged parts of a building into compliance with building codes, a policy’s endorsement for replacement cost coverage due to building ordinance or law should be purchased depending on the age of the building.
Personal property insurance for landlords
Other than a landlord’s major appliances covered under a landlord’s commercial insurance policy, a landlord’s personal property can be covered under a commercial insurance policy, with limitations.
Examples of personal property owned by the property owner for maintaining the structure and premises or used on the premises are floor coverings, outdoor furniture, fire-fighting equipment, and some other appliances. Since these items of personal property are insured under the same limit of insurance for the structure itself, loss recovery paid for this type of personal property would reduce the amount available for repairing or replacing structural damage.
General liability Insurance for landlords
Liability for bodily injury to tenants and third parties (such as invitees or guests) is covered under a commercial general liability policy.
Personal injury to tenants such as invasion of privacy is covered under a commercial general liability policy.
Management Liability for landlords
Professional liability insurance protects building owners for management liability.
A landlord or its agent is obligated to meet the terms of a lease agreement with tenants and abide by law in management and operation of rental dwellings.
Any wrongful acts in breach of that duty on the part of an owner is covered with a professional liability policy.
Loss of use and/or revenue for BOTH landlords and tenants, with separate insurance:
Landlords and tenants have separate but related interests when a dwelling cannot be occupied due to damage. In that situation a landlord stands to lose rental income while tenants might incur added costs for an alternative dwelling. Separate insurance coverages insure against these risks.
A landlord’s loss of rent or revenue by a covered peril is insured under a commercial property insurance’s business income coverage. However, it is not provided automatically since a limit for coverage must first be selected to partially recover the landlord’s loss of rental revenue.
Tenants’ loss of use can occur when a unit cannot be occupied due to a covered peril. “Additional living expenses” in a renters policy usually provides, albeit with limit, for “additional living expenses” needed to pay for substitute housing.
Please note that the coverage under that limit applies only to the amount more than the rent amount the tenant paid prior to the loss. Additionally, if a tenant’s lease provides for an abatement, suspension or cancellation of rent payments when a unit cannot be occupied, the amount a tenant can recover under a renters policy is further limited.
Renters’ policies usually apply to tenants’ personal property and personal liability.
Since mortgage lenders don’t require renters’ insurance but only property owners’ insurance, there are far fewer renters policies than owners’. More and more landlords demand tenants to have renters’ insurance as a condition of their lease to ensure liability protection of renters for bodily injury or property damage to the landlord’s property and others’ properties.
Liability for damage to building structure
A renter’s liability policy can cover a tenant’s personal liability for damages to a building’s structure.
Renters’ Personal property in dwelling units
Renters’ insurance for tenants personal property not only protects tenants’ personal belongings against theft, perils but also helps landlords avoid disputes over damage to tenants’ possessions, provided that landlords require tenants to take out renters’ insurance in their leases.
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