From historic wildfires to record-breaking hurricanes and storm surges, it’s been a bad year for many landlords and tenants. Yet few people outside of those immediately affected may realize the colossal toll recovery from these disasters takes on families and individual lives. Some people lost loved ones. Many more are rendered homeless. Even those fortunate enough to have a roof over their heads have lost jobs or are temporarily unemployed while businesses struggle to come back on line.
Understandably, landlords in the path of disasters want to minimize income loss. But that must be done without creating new or greater liabilities. If ever there was a time for landlords and tenants to understand their rights and responsibilities, it is in the face of an emergency:
Who Pays the Rent?
There have been a number of news reports highlighting the controversial question: Does the tenant owe rent during a natural disaster? Unfortunately, there is no easy answer, but it certainly is not a given that the tenant is still on the hook for rent.
Generally, the landlord must provide habitable premises. If the property is severely affected so that water, sewer, electrical and HVAC systems are offline, or if standing water or mold present health hazards, it is unlikely that a tenant will be required to honor the existing lease. If parts of the property are unusable, the tenant likely will be entitled to a proportionate rent reduction.
The law regarding the payment of rent during a disaster can vary from one state to the next. However, a principle of contract law provides an escape in the case of impossibility — circumstances beyond a party’s control. If the lease agreement contains such a provision, it may not matter what state law provides. Conversely, where the property is partially habitable or easily restored, it is unlikely the landlord can use the disaster to terminate a less-desirable lease agreement with the intent of making improvements and increasing the rent.
Attempting to collect rent from tenants in the aftermath of a disaster may not be the best way to reduce losses. It may be in a landlord’s best interests to restore the unit as quickly as possible, and not rely on the terms of the lease agreement to prevent lost income.
In the event that tenants are required to keep up with rent payments during the aftermath of a natural disaster, the landlord’s duties may change. For instance, it may be necessary to provide portable heating or air conditioning during the times that systems are down.
In addition to charging rent, some landlords in these recovery zones still might apply late charges. Whether that is appropriate can only be determined on a case-by-case basis, but landlords adopting this strict policy may want to consider the possible fallout. This is particularly problematic where city or state officials encouraged or ordered evacuations. Cash-strapped tenants may not be able to make their way back home for some time.
Because late fees are capped at a nominal amount, this may not be the most cost-effective strategy during a crisis. If a rental policy seems unfair, tenants are more likely to seek legal help and to look for ways out the lease. Bad feelings between the landlord and current tenants translate into bad reviews and negative comments. That may impact prospective renters for years to come. Losing good rental prospects lowers the value of the property.
Landlords and Insurance Fraud
Landlords who are demanding rent payments during a natural disaster or emergency and also are collecting insurance proceeds or other aid to cover those losses may be committing fraud. The penalties for insurance fraud can be severe, so it is important to keep the accounting straight and avoid double-dipping. It’s equally important that property managers and leasing staff are aware of that potential conflict.
Tenants, too, can get into trouble with fraud by accepting rent subsidies or insurance payments and then not paying the landlord.
Whether the landlord’s insurance covers lost rent payments in addition to property damage depends upon the policy. Flood insurance may be acquired from a separate policy. Generally, it is available only where the National Flood Insurance Program has designated the area at risk for flooding. Insurance agents can answer specific questions about what coverage is available.
Tenants often do not understand the extent of their renter’s insurance coverage. Renter’s insurance may not cover floods or other natural disasters unless the tenant purchased a separate rider. It is in the landlord’s best interest to educate tenants on the benefits of renter’s insurance, which may pay for lost possessions, hotels, gas and other costly items. To the extent landlords can encourage tenants to carry renter’s insurance, tenants can recover faster and get back to the business of paying rent.
Recent storms have broken historic records, but if a property is in poor condition before a storm hits, that can impact the extent of the damage. While landlords typically are not responsible for acts of nature, a landlord could be liable if property conditions create extraordinary hazards.
For instance, if the tenant sustains an injury that could have been prevented with proper maintenance, or a tenant’s escape is hampered by conditions at the property, a landlord could be subject to a claim for negligence or wrongful death. If more than one tenant is injured, the likelihood of a lawsuit increases exponentially. Juries are allowed to consider past complaints brought by tenants regarding the property condition. Injured tenants may be awarded punitive damages, which often are not covered by insurance. Those awards typically are the same amount or greater than the actual damages.
Landlords outside the danger zones still risk liability for taking advantage of displaced residents. Charging exorbitant prices for rent or other services likely violates local price-gouging laws or consumer protection statutes. Penalties are steep and likely will be significantly higher than whatever short-term advantage a landlord might have gained by renting to the highest bidder.
Preparation Reduces Losses
When disaster hits, life becomes a scramble, first for survival, and then for normalcy. Preparing in advance for natural disasters can take some of the sting out of an otherwise brutal situation, and at the same time reduce income loss. Landlords should:
Provide an emergency evacuation plan for tenants;
Maintain contact information for tenants, and make sure tenants have a way to reach the landlord or property manager;
Know how many people and how many pets occupy the rental property to aid rescue workers;
Review insurance coverage and go through possible scenarios with the agent to better understand what’s covered — and what’s not; and,
Encourage tenants to purchase renter’s insurance. Special riders may be necessary to cover natural disasters.
This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).
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Disclaimer: The information provided in this post is not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.