Pat Hune, Broker 1st Southwest Realty, Insurance.com and Various Sources, June 2022
Whenever I am driving around and see smoke billowing up in the air I think “I hope that is not one of my listings.” Well, last week it was one of the rentals we manage. The tenant’s personal items were a total loss. They can’t live in the house due to the extent of the damage. The landlord’s lease obligation ends if the house is uninhabitable. Because they don’t have renter’s insurance, the tenants have to cover the replacement of their personal property and their temporary housing costs while they look for a new rental. In addition, if the tenant caused the fire they may be liable to the owner for the cost of repairs.
Some of the reasons tenants can be found liable for a fire include such things as:
– Leaving a candle burning in an unoccupied room
– Not properly observing food that is cooking on the stove
- Using an appliance that is in poor condition and a fire risk.
- Improper use of BBQ grills.
- Improper storage of flammable materials.
If it is determined the tenant’s negligence led to the fire, then they can be held responsible for some or all of the damages. The landlord’s insurance company may try to sue the tenants for the damages but it is highly unlikely any money will be recovered. They are tenants so probably don’t have a lot of assets. If the insurance company can’t recoup some of their losses they will simply pass the costs back to the landlord in the form of higher insurance premiums. This is why it is important to the landlord that tenants have renter’s insurance.
Landlords can try to convince tenants that the coverage is worth it. Most policies cover up to $40,000 of personal property with a $1,000 deductible. Additionally, Renters insurance helps fix the problem if the tenant accidentally breaks other people’s property. It pays for someone’s medical bills if they get hurt in the house and the tenants are responsible. Some policies include coverage if the tenant’s dog bites someone though typically aggressive breed dogs are not covered. If the tenant adds additional living expense coverage it will cover hotel bills if the house is no longer habitable.
Renter’s insurance is relatively inexpensive at about $25 a month or $300 a year but tenants will still resist buying a policy. The tenant’s credit history, the location of the house and the coverage amount are some of the factors that determine the cost. Nationwide, State Farm, Travelers, Allstate and Farmers are the companies that provide the cheapest renters insurance according to a survey by insurance.com. The landlord and property manager are named as additional insured.
The standard lease provided by the Arizona Association of Realtors does not require the tenants to buy insurance but strongly encourages it. It says “Tenant Liability/Renter’s Insurance: Tenant assumes all liability for personal injury, property damage or loss, and insurable risks except for that caused by Landlord’s negligence. Landlord strongly recommends that Tenant obtain and keep renter’s insurance in full force and effect during the full term of this Lease Agreement.” Some landlords add language to the lease requiring the tenant to prove renter’s insurance is in place before the tenant can occupy the property. However, once the tenant is residing in the property they may stop paying for the policy.
The answer to the overall question is yes, the landlord should require the tenant to purchase renter’s insurance. However, enforcing this once the tenant has moved in is more difficult. The landlord probably cannot evict the tenant because they don’t have insurance. So should the landlord purchase the policy on behalf of the tenants and add the cost to the rent? This is a financial decision the landlord will have to make after weighing the cost versus reward versus risk.