Melissa, TX · Member since 2018 · 19 posts · 2 votes
I live in California and minimizing liability is the name of the game here because the state is so favorable to tenants, even when you go out of your way to do the right thing. So, I want to put a clause in my lease that limits my liability in the event my tenants need to stay at a hotel due to emergency repairs that make the house uninhabitable. I would like to limit my liability to 1/30 of the monthly rent per each day that the tenant is out of the property. What I do not want is a tenant who wants compensation for their inconvenience or any other expense they may claim they are incurring and that they want me to pay. Can someone please help me with the wording to write a clause that satisfies this limit of liability to no more than 1/30 of their monthly rent for each day they are staying in a hotel?
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
7y
I think you're looking at this the wrong way.
I assume you have a personal home with a mortgage. If a water pipe breaks and the place floods, you would have to move out while renovations take place. Does your mortgage company reduce your mortgage payment to off-set the cost of your hotel or your inability to enjoy the home? NO! You pay the mortgage no matter what.
Does anyone compensate you? Yes! Your insurance company may cover your housing costs during the renovation.
The same is true for a tenant. They should have renters insurance to cover these things. Freezer breaks and they lose the $500 of steaks they just bought at CostCo? Renters insurance covers that, not the Landlord.
Rental Property Investor · Dayton, OH · Member since 2017 · 246 posts · 225 votes
7y
"Coverage D" is the section of your insurance policy that provides coverage for this. Coverage D only applied if a covered loss occurs to the property. You'd have to refer to your specific policy to determine covered losses.
Coverage D is for the loss of use or loss of rents. On a homeowners policy, Coverage D is often 20% of Coverage A. Coverage A is the amount the residence is insured for. If the insurance limit or coverage A is $300,000, Coverage D would likely be around $60,000.
On a dwelling fire policy, or "landlord insurance policy" coverage D is generally 10% of Coverage A.
A renters policy is a homeowners policy, in the insurance world they are referred to as an "HO-4." Coverage D is also available on the renters policy.
To attempt to bring this together...let's say a kitchen fire happens and makes the house inhabitable. If the tenant has an active renters insurance policy, most likely, their policy would handle the displacement. Their coverage D would kick in, and their policy would pay for them to stay elsewhere until it is resolved.
If they didn't have this policy...your landlord policy would be the first line of defense. So, on the landlord policy, your Coverage D is called "loss of rents" and the policy will pay you the fair market value for rent for the shortest amount of time while the property is managed. You would then use this to place the tenant elsewhere. If it is lesser, great...you will make money. If a hotel or something is greater...then you will lose money.
I think you're right in that you need to mitigate this risk. However, I think you may be recreating the wheel. If you have a clause that requires renters insurance, you may have enough. I would just go so far as to put a system in place to enforce and make sure that all of your tenants have renters insurance.
If this didn't make sense...or you'd like for me to elaborate on this...please let me know. I'd be more than happy to help.
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