{"id":186210,"date":"2025-12-19T09:39:15","date_gmt":"2025-12-19T16:39:15","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=186210"},"modified":"2025-12-19T09:39:18","modified_gmt":"2025-12-19T16:39:18","slug":"why-you-should-be-using-an-llc-to-protect-from-liability-claims-on-renovations","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/why-you-should-be-using-an-llc-to-protect-from-liability-claims-on-renovations","title":{"rendered":"Why You Should Be Using an LLC to Protect From Liability Claims on Renovations"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><em><span data-preserver-spaces=\"true\">This article is presented by <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.legalzoom.com\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">LegalZoom<\/span><\/a><span data-preserver-spaces=\"true\">.<\/span><\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Perhaps you\u2019re just dipping your toes into real estate investing with your first property, or you might have a bit more experience and are currently renovating a couple of units.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Wherever you are on your investing journey, if you\u2019re a small-scale real estate investor, it may seem like the whole \u201csetting up an <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.legalzoom.com\/articles\/what-is-a-limited-liability-company-llc\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">LLC<\/span><\/a><span data-preserver-spaces=\"true\">\u201d aspect of it doesn\u2019t apply to you. It may seem excessive and too time-consuming for what it\u2019s worth. Surely putting a fresh coat of paint and improving a couple of things in an older unit before renting it out isn\u2019t that big a deal, legally speaking?<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">The truth is that many small real estate investors underestimate <\/span><span data-preserver-spaces=\"true\">how much<\/span><span data-preserver-spaces=\"true\"> legal exposure comes <\/span><span data-preserver-spaces=\"true\">from<\/span><span data-preserver-spaces=\"true\"> renovation work.<\/span><span data-preserver-spaces=\"true\"> It\u2019s not the scale of your investment that should get you thinking about <\/span><a class=\"editor-rtfLink\" href=\"http:\/\/www.legalzoom.com\/articles\/how-to-start-an-llc-in-7-steps\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">setting up an LLC<\/span><\/a><span data-preserver-spaces=\"true\">\u2014it\u2019s the type of investment.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">If you\u2019re investing in a turnkey property via a company, you may well be off the hook because someone else owns that liability (more on that later). But if you are managing the renovation work yourself, even on a single investment property, the potential benefits are substantial.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Here\u2019s how LLCs protect you from liability claims on renovation.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Common Legal Disputes During Renovations<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">First, you might be wondering, \u201cHow bad can it really be?\u201d Well, here\u2019s a taste of what can go wrong on a renovation site that could lead to a liability claim:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">A contractor gets injured on-site and sues the owner.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">A subcontractor files a mechanics lien.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">A renovation causes damage to a neighboring property.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">A flip buyer claims undisclosed defects.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">A vendor contract dispute escalates.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Poorly drafted rehab agreements lead to overruns or nonperformance.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Unlicensed work creates liability after resale.<\/span><\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">As you can see, there are a ton of legal \u201cunknowns\u201d that come with a renovation project. Your <\/span><span data-preserver-spaces=\"true\">biggest<\/span><span data-preserver-spaces=\"true\"> risk is often not the property itself, but the vendors and subcontractors performing the work. They can sue you if something happens to the builders on the premises, but they can also cause litigation much further down the line if the renovation work <\/span><span data-preserver-spaces=\"true\">isn\u2019t completed up<\/span><span data-preserver-spaces=\"true\"> to standard.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">By far the riskiest aspect of any renovation work is <\/span><span data-preserver-spaces=\"true\">that<\/span><span data-preserver-spaces=\"true\"> the legal side <\/span><span data-preserver-spaces=\"true\">of things<\/span><span data-preserver-spaces=\"true\"> (who <\/span><span data-preserver-spaces=\"true\">owns responsibility<\/span><span data-preserver-spaces=\"true\"> for what) is often vague and complicated.<\/span> <span data-preserver-spaces=\"true\">The more subcontractors <\/span><span data-preserver-spaces=\"true\">who are<\/span><span data-preserver-spaces=\"true\"> involved in your project, the greater the risk that someone <\/span><span data-preserver-spaces=\"true\">working<\/span><span data-preserver-spaces=\"true\"> on site is not properly qualified\/unlicensed, which can have <\/span><span data-preserver-spaces=\"true\">huge<\/span><span data-preserver-spaces=\"true\"> consequences.<\/span><span data-preserver-spaces=\"true\"> It could be just a single plumber\/installer.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\"><span style=\"margin: 0px; padding: 0px;\">Not all states require contractors to have a specific warranty; instead, they stipulate vague requirements along the lines of \u201c<a href=\"https:\/\/www.detroitnews.com\/story\/life\/home-garden\/2024\/06\/13\/the-inside-outside-guys-understanding-the-builder-license-law\/74048885007\/\" target=\"_blank\" rel=\"noopener\">fitness for intended use and habitability<\/a>\u201d (a\u00a0<a href=\"http:\/\/www.legalzoom.com\/articles\/how-to-start-an-llc-in-michigan\" target=\"_blank\" rel=\"noopener\">Michigan<\/a>\u00a0example).<\/span> If a structural defect is discovered after a sale and you\u2019re sued by the new owner, and the contractor warranty will not cover you, you are liable.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Lien filings can be disastrous for a real estate investment. When a contractor orders renovation materials, the supplier has a lien on part of your home equal to the cost of the materials. If a contractor, for whatever reason, ends up not paying the supplier, the supplier can sue you for the <\/span><span data-preserver-spaces=\"true\">cost<\/span><span data-preserver-spaces=\"true\">, or, in the worst-case scenario, force the sale of the property to cover their <\/span><span data-preserver-spaces=\"true\">costs<\/span><span data-preserver-spaces=\"true\">.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Investors in multifamily units should <\/span><span data-preserver-spaces=\"true\">be prepared<\/span><span data-preserver-spaces=\"true\"> for costly lawsuits from residents who, at some point, discover that they live in a building that <\/span><span data-preserver-spaces=\"true\">is insufficiently or improperly renovated<\/span><span data-preserver-spaces=\"true\">. If you own a condo, for example, you can be sued for a flooded communal parking garage (<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.homes.com\/news\/condominium-owners-turn-to-increasingly-complex-lawsuits-in-push-for-building-renovations\/87592922\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">a real case in Florida<\/span><\/a><span data-preserver-spaces=\"true\">) or an under-renovated lobby. <\/span><span data-preserver-spaces=\"true\">Again, depending on your local legislature and the exact building, either the building <\/span><span data-preserver-spaces=\"true\">developer<\/span><span data-preserver-spaces=\"true\">,<\/span> <span data-preserver-spaces=\"true\">or you, the owner, can be <\/span><span data-preserver-spaces=\"true\">filed against<\/span><span data-preserver-spaces=\"true\">.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">The right question isn\u2019t, \u201cHow likely am I to get sued?\u201d but \u201cHow much complexity is involved in my renovation?\u201d <\/span><span data-preserver-spaces=\"true\">The more complex the renovation project, the more trouble you can <\/span><span data-preserver-spaces=\"true\">land in<\/span><span data-preserver-spaces=\"true\"> if something <\/span><span data-preserver-spaces=\"true\">does go<\/span><span data-preserver-spaces=\"true\"> wrong.<\/span><span data-preserver-spaces=\"true\">&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">How Personal-Name Ownership Amplifies Liability<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Quite simply, if<\/span><span data-preserver-spaces=\"true\"> you own a renovation property in your own name, you are personally responsible for any legal claims filed against you.<\/span><span data-preserver-spaces=\"true\"> You can then stand to lose anything you own, including your savings, any other investment properties you own, or even your home.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Your premises liability insurance does <\/span><em><span data-preserver-spaces=\"true\">not<\/span><\/em><span data-preserver-spaces=\"true\"> cover any contractors working on renovating your investment property. You may have heard about taking out a \u201cBuilder\u2019s Risk\u201d-type policy, and <\/span><span data-preserver-spaces=\"true\">it\u2019s true that it will<\/span><span data-preserver-spaces=\"true\"> cover personal injury or <\/span><span data-preserver-spaces=\"true\">accident\u2014<\/span><span data-preserver-spaces=\"true\">to you or your tenant\/a visitor, but again, not a contractor or subcontractor working on the property. Contractors need to be covered by their own insurance.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">You also cannot use personal liability insurance to pay for investment-related claims; you must take out premises liability for anything investment-related.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">As an investor, you\u2019re not left with many options if you own your investment property under your own name. You are legally responsible, and there\u2019s not much recourse if something goes wrong during or after a renovation because insurance won\u2019t cover workers on your premises.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Why an LLC Creates a Legal Boundary Between Rehab Risk and Personal Assets<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">When you form an LLC for your investment properties, if the renovation contracts are between the contractors and the LLC, not you personally, then any legal claims <\/span><span data-preserver-spaces=\"true\">in connection with<\/span><span data-preserver-spaces=\"true\"> the property can only be filed against the LLC, not you personally. That means that your personal assets (your own home, personal savings, car) are protected; only your company assets (say, another investment property held under your LLC) are open to claims. Even if a liability claim results in you having to pay the claimant, if you don\u2019t have enough in your business assets, the claimant cannot go after your personal assets.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Considering how easy it is to set up an LLC, it\u2019s a no-brainer for any real estate investor. However, you have to run them diligently and conscientiously.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">If you start mixing personal and business expenses, for example, by using your business bank account for your personal bills, you are breaching that legal LLC shield, potentially opening up your personal assets to litigation after all. But, so long as your LLC <\/span><span data-preserver-spaces=\"true\">is run<\/span><span data-preserver-spaces=\"true\"> correctly, it does protect you. You also don\u2019t have to run a company to form an LLC\u2014you can be a <\/span><a class=\"editor-rtfLink\" href=\"http:\/\/www.legalzoom.com\/articles\/llc-vs-sole-proprietorship\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">single-member LLC<\/span><\/a><span data-preserver-spaces=\"true\">.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">How LLCs Work With Insurance<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Despite all of its benefits, setting up an LLC does not mean that you don\u2019t need to take out insurance on your investment properties. There are many scenarios where having an LLC will not protect you from a claim. For example, you still need home insurance to protect you from natural disasters and hazards like fires.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Or let\u2019s imagine another, far more common renovation-related scenario: Someone visits the premises while you are also there during the renovation and slips and falls. They could still sue you personally, and if the court found that the accident was the result of your own personal negligence, you could still lose personal assets. That\u2019s why a premises insurance with a Builder&#8217;s Risk policy is still essential.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Why Investors Doing Value-Add Projects Should <\/span><em><span data-preserver-spaces=\"true\">Always<\/span><\/em><span data-preserver-spaces=\"true\"> Have Entity Protection<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Value-add investments are <\/span><span data-preserver-spaces=\"true\">by<\/span><span data-preserver-spaces=\"true\"> their nature <\/span><span data-preserver-spaces=\"true\">more<\/span><span data-preserver-spaces=\"true\"> complex than turnkey investments.<\/span><span data-preserver-spaces=\"true\"> There is more that can go wrong both during and, crucially, after the renovation\u2014in some cases, even after you\u2019ve sold the property.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Think of an LLC as that vital shield against \u201cunknown unknowns\u201d: You <\/span><span data-preserver-spaces=\"true\">simply<\/span><span data-preserver-spaces=\"true\"> can\u2019t predict or avoid every eventuality because of the multiple parties involved, so it is essential to protect your personal assets against any claims that you are potentially <\/span><span data-preserver-spaces=\"true\">being exposed<\/span><span data-preserver-spaces=\"true\"> to.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>This article is presented by LegalZoom. Perhaps you\u2019re just dipping your toes into real estate investing with your first property, or you might have a bit more experience and are [&hellip;]<\/p>\n","protected":false},"author":613618,"featured_media":186212,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4241],"tags":[],"class_list":["post-186210","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-business-management"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/186210","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613618"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=186210"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/186210\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/186212"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=186210"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=186210"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=186210"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}