Advice Needed! Residential Tenant w/ a Daycare = Insurance Headache! Help!
Hello Bigger Pockets Real Estate Aficionados... Got a nice juicy one for you here... Hoping someone with better knowledge/experience than me will be able to help out and advise...
SCENARIO
We just recently acquired a fully-rented residential triplex in New York where one of the tenants operates a small "Family-Group" Daycare center out of her apartment. She also lives there, in one of the bedrooms which she shares with her child. She appears to be duly licensed for childcare but has NO Business Liability Insurance (or even Renters Insurance). (Crazy right?)
We currently have 'residential' insurance on the property but we're not sure that they would carry the policy if they knew about the daycare. (They never asked so we didn't tell). We're concerned that if they find out they will cancel their coverage. If we were to get proper coverage including the daycare, fully-disclosed, it will cost double at least! (An extra $2,000!) Not only that, but g-d forbid if there is a calamity tomorrow they could very conceivably try to not honor any coverage due to the daycare.
The tenant's lease was amended to allow her to operate a daycare but also explicitly forbids any activity which is likely to increase Insurance premiums and so is a little contradictory. Her lease is also up in approx 60 days from today.
Here's what were thinking (please pipe-in if you agree/disagree) : In order for this scenario to be fully kosher :
1.) The tenant would have to Immediately Procure Business Liability (and ideally renter's) Insurance and add our LLC which owns the property as the additional named insured
2.) We would need to immediately cancel our current 'improper' insurance and procure a new policy where the daycare is fully disclosed, even if it costs us a lot more $$$. (Read: $2,000 +++)
HERE's THE PROBLEM:
We're worried that the tenant will not be able to afford all of these new costs.
The Liability Insurance will likely cost her minimum $1,500 out-of-pocket and then we of course would not wish to "eat" the additional insurance cost so will have to pass this cost along and bump up her rent by at least approx $150 - 200 per month.
She may not be able to swallow it. We would then be forced with the ugly, distasteful and unfortunate dilemma of kicking out (or at least trying to) a very nice single-mother & child (who happen to be not-horrible tenants) during winter-cold February PLUS inconveniencing all the mothers who bring their 3 month olds to that particular daycare.
This is not a pretty situation.
If it comes down to an 'eviction' it could get ugly (it's one thing to evict a drug-dealer but another altogether to evict a single mom&child with daycare babies...!) and of course, we could be out several months of rent + legal fees while we wait...
Ideally, the previous owner would never have agreed to allow a daycare into his building, but that's not the situation we're in right now...
Do we have the right to immediately demand that she procure Liability Insurance and add our LLC as Named-Insured? Do we have the right - either legal or moral right - to ask her to pay increased rent since our insurance will double?
How should we handle this? Shall we just wait until lease renewal before dealing with this? Any ideas? Tips? Advice? ALL FEEDBACK WELCOME! Any other alternate options we didn't even think ok?
ALL COMMENTS NEGATIVE, POSITIVE or otherwise are invited. PLEASE, DON'T HOLD BACK....
Thanks!
Jay aka "Brooklyn"