Do I Need Landlord Insurance?

If you’re a landlord, whether you’re a small business landlord renting out a single room in your home, or a big business landlord renting out an entire building, you should be familiar with landlord insurance. Some of you may only rent out a room for a few weeks per year, in which case you can disregard this post; homeowner’s insurance will typically do the trick. For the rest of us, landlord insurance is a necessity, as your homeowner’s policy simply will not suffice.

Having said that, for those of you who are subletting a room in a home that you also occupy, you may have the option to endorse your homeowner’s policy with “unit rented to others” coverage, as opposed to buying a separate policy. This is something you’ll want to discuss directly with your insurance representative. Relying on your homeowner’s policy alone, however, can be risky; many claims that you make may not be covered. A homeowner’s insurance company will not take rented space into account when they issue your policy. If the policy doesn’t indicate any coverage related to rental space, your coverage will likely be denied in the case of a home related accident. So, endorsing the coverage in these types of scenarios is crucial.

If you don’t live in the same space as your tenant, whether you rent out a condo unit, an entire house, an apartment space or several apartment spaces in an entire building, you will need a separate policy. Now, when I say you’ll “need” one, I’m not talking from the stance of the law, as landlord insurance is not a requirement by law. But if you fail to issue a policy you’ll be jeopardizing your entire business venture; you’ll run the risk of financial loss related to damages due to fire, break-in, severe weather and more. If you aren’t covered and your property encounters damages of any kind, those costs will come out of your pocket. Would you really want to cover damages exceeding $100,000 due to a fire, for example? Would you even be able to comfortably do so? With a good landlord insurance policy, you can sleep well at night knowing that your rental unit is covered in the off chance that it becomes uninhabitable due to circumstances beyond your control.

Landlord insurance will typically provide several important types of coverage, but the exact policy would depend on the insurance company that you choose to work with, and the options that you choose to include. Your policy may consist of one, or all of the following:

Property Damage: This will cover any costs associated with damage to your property due to storm damage, fire, theft, vandalism or tenant damage. When opting for this coverage, it’s important to ensure that this clause will cover the replacement costs for your entire property in the rare event of a total loss.

Loss of Income:  On the off chance that your rental property becomes uninhabitable due to a covered loss i.e. fire, this coverage will reimburse you for all the “lost rent” you’ve incurred while the unit is being made habitable once again.

Liability Insurance:  This may be the most important aspect as it will protect you against liability claims and lawsuits. Without it, if a tenant or visitor injures themselves in your property, you can end up in a mess of hot water. Liability insurance will help to cover the costs associated with bodily injury claims on your property, including but not limited to funeral costs, medical payments, settlement costs and legal fees. You’ll also be covered if you are found to be responsible for damage to any of your tenants’ property. For example, if you neglect to fix a broken water pipe in the unit, and it bursts causing damage to the tenants’ personal belongings.

You can also buy additional or “optional coverage” depending on what you deem to be necessary, but the above 3 coverages are of utmost importance. In addition, you may wish to have coverage related to natural disasters, or you may wish to add employer liability insurance, rent guarantee insurance, or even landlord contents insurance; landlord contents insurance will cover any of your own personal belongings that are within the rental space i.e. carpeting, furnishings, paintings etc.

The cost of landlord insurance can vary greatly depending on the scope of the coverage. Some policies can be as little as $500 per year or less (this is mainly the case for small rental units); other policies can run into thousands of dollars a year (mainly for larger units). Keep in mind, landlord insurance is tax deductible, as being a landlord is a business endeavor.

So, landlord insurance may not be necessary by law, but failing to issue the coverage is a rookie mistake.

What Landlord Actions are Prohibited?

Over the years, rules and regulations related to landlord and tenant management in Ontario have become increasingly complex. Prior to 2007, the Tenant Protection Act of 1997 (TPA) was the main governing force determining what behaviours were acceptable under the landlord/tenant relationship. This act was implemented by the Progressive Conservative government of Mike Harris, and was officially proclaimed in June 1998. This signified a simpler time for Landlords; under the TPA, a landlord could request eviction for any reason, and it was automatically granted without a hearing unless the tenant filed a notice of dispute within 5 days of the request being filed. Now, as wonderful as that may sound to some of you, let’s be serious here for a second: Problem tenants aside, this is not fair and understandably became the focus of scrutiny. With the TPA under the microscope, the Ontario government went back to the drawing board to create a new act. On January 31st 2007, the Residential Tenancies Act (RTA) was officially implemented, replacing the TPA. Along with this new act came a new governing body, the Landlord and Tenant Board (LTB).

The main purpose of the act was, and is, to protect tenants from unlawful rent increases and unlawful evictions, as well as to better govern the landlord/tenant relationship. This, however, is a grossly oversimplified explanation. The act itself runs hundreds of pages in length. With that said, let’s focus on what actions a Landlord CANNOT do.

For starters, a landlord cannot interfere with the supply of vital services to the tenant. Ok, what does that mean? Think heat, water, security, carbon testers etc. One aspect that is exempt, is air conditioning. This is not considered a vital service.

Moreover, a landlord is prohibited from interfering with the tenant’s reasonable enjoyment of the unit or property. But who defines what is reasonable? Unfortunately, there are no clear-cut guidelines. For the most part, it’s safe to say that you can interfere if the tenants are a.) breaking the law, or b.) interfering with other tenant’s enjoyment of their rental units i.e. excessive noise.

A landlord is also prohibited from harassing, obstructing, coercing or threatening the tenant. This type of behaviour will be particularly scrutinized during the eviction process. Of course, these are behaviors that should be avoided in life from a general standpoint. On the topic of eviction, the landlord is also prohibited from issuing an eviction notice to the tenant and forcing them to move out for a reason that the landlord knows is untrue. In other words, no making things up.

A landlord cannot take a tenant’s belongings without following the rules set forth by the RTA, and they also cannot charge or attempt to charge a fee of any type over and above the rent amount. Thus, a landlord is only able to hold the equivalent of one month’s rent as a deposit, which is to be used towards the tenant’s final month in the unit.

Landlords cannot refuse to provide a receipt for rent paid, charge or attempt to charge a damage deposit, demand or attempt to collect post dated cheques or pre-authorized payments, or pressure the tenant to accept an unauthorized rent increase.

Regarding subletting, this may come as a surprise: A landlord cannot arbitrarily withhold consent to sublet the rental unit. If a tenant wishes to sublet their unit, they are within their rights. Not as surprisingly, a landlord cannot refuse to rent to a tenant based on their race, sexual orientation or because they have children. A landlord also cannot refuse to rent to a minor aged 16 or 17-year-old. Furthermore, a landlord cannot refuse rent to a potential tenant who has a service animal.

Of course, a landlord absolutely cannot evict a tenant without following the rules set forth by the RTA. Regarding rent raises, a landlord is entitled to rent increase every 12 months within the guideline, but they are not able to implement a rent increase unless 12 months have passed since the last increase. The landlord is also required to provide the tenant with proper notice and cannot increase the rent beyond the guideline. A landlord also has rules that they are required to follow prior to entering a tenant’s unit, including written notices with at least 24 hours in advance of entry.

A landlord may change the locks on a rental unit, but they may not do so without providing the tenant with proper notice and providing a new set of keys.

Long list so far, right? Well, there’s just a little more:

A landlord cannot restrict access to a rental unit or complex, make a tenant buy anything from the landlord or previous tenant as a condition occupancy, or charge a fee to a tenant for giving consent to sublet, except for out of pocket expenses. Finally, a landlord cannot charge late fees, apply to the LTB to recover unpaid utilities, or claim N.S.F. fees on the notice of early termination for non-payment of rent notice.

Well folks, thanks for staying with me! I know that was a little much, but many landlords find themselves in hot water simply for not understanding these basic rules. Take the time to review and understand these regulations; knowledge will give you the power needed to successfully manage your landlord business.

What are the Responsibilities of my Tenant?

Communication – an important factor in any relationship. Expressing your requirements and expectations as a landlord is the only way to set the base for a successful tenancy. To do this, you first need to understand what you can legally enforce. The unfortunate truth is that an overwhelming percentage of small business landlords and tenants alike have very little idea of what responsibilities land on the tenant’s shoulders, and what responsibilities land on the landlord’s shoulders. This lack of knowledge often leads to confrontations, built up resentment, fights, and ultimately – legal battles. Before allowing your relationship with your tenant to go down this path, familiarize yourself with what you can legally expect of your tenant.

Time is Money; Don’t Wait for Yours

The first and most obvious point: your tenant must pay their rent, in full, on time. Well duh, right? The issue is that people don’t like paying for things that they already have. With something like rent, many tenants will put it in the back of their minds, and pay late. Not necessarily because they’re trying to get away with not paying, but because they aren’t receiving any immediate satisfaction of now possessing something new upon paying; they already live in the space, it’s their home. Of course, they understand that failing to pay rent will inevitably lead to their eviction, but they also know that paying late will likely get them a slap on the wrist at worst. So, it’s quite common that a tenant habitually “forgets” to pay rent by the due date. As a landlord, it would be wise to nip this behaviour in the bud. Speaking with the tenant about the importance of paying on time, and sending written notices when the tenant fails to do so are very important ways of getting the point across. If the tenant is consistently late, you should be contacting the Landlord and Tenant Board (LTB). Now, it’s no secret that the LTB highly favors tenants, so you’ll need to gather evidence. The best evidence in such cases is a collection of N4 notices of termination; if payment is not made on the day it’s due, serve the tenant with a Notice of Termination for non-payment of rent the very next day – do not delay. In the case that the problem continues, you can serve the tenant with not only an N4, but an N8; a notice of termination for consistently paying late. With any luck, the tenant will get the message long before it reaches this boiling point, as the process of eviction can be lengthy and tedious for a landlord, with no promise of receiving past due amounts.

They Break it? They Pay for It!

Last week, we looked at who is responsible for repairs? Unfortunately, most repairs are the responsibility of the landlord. With that said, the tenant is directly responsible for any damage that they directly caused i.e. if the tenant throws a party and a window breaks due to irresponsible behaviour, the landlord can absolutely hold the tenant accountable. With that said, any damage caused by regular wear and tear is the responsibility of the landlord.

Keeping the Home Clean and Liveable

Your tenant is responsible for regular maintenance of the living space i.e. cleaning and uptake. Now, the issue here is that everyone has a different idea of what “clean” is. There are unfortunately no clear-cut criteria outlining what exactly a “clean living space” is. So, this much is open to interpretation. If your tenant is trashing the place, collect evidence like pictures and documented notices, and contact the LTB.

Hey, Keep it Down!

Again, this is a bit of a grey area. What exactly is “reasonably quiet”? Different people will give you different answers. But if the tenant is consistently disturbing other people who live in the building or house, you should be able to collect evidence to state your case. Your best bet is to document complaints from other tenants regarding the noise, or document the noise itself in the case that you live in the same space as your tenant.  Don’t forget to leverage your lease agreement when dealing with the LTB or the tenants themselves.

Break the Law? Not in My Space

The law is the law, plain and simple. Criminal activity in the rental space (or anywhere else for that matter) is a big “no, no” and you should be prepared to act. If your tenant is breaking the law, the solution is simple: contact the authorities.

These are the main responsibilities of your tenant. Know them, communicate them to your tenants, and always outline your expectations clearly and concisely in the lease agreement.

Repairs: Who is Responsible?

One of the most common issues surrounding landlord/tenant law is the question of repairs to the property. Every tenant has the right to a well-maintained home in a clean and safe building. At the same time, it’s important that a landlord is covered in the instance of an irresponsible tenant mishandling or abusing the property. It’s a very touchy issue, and unfortunately, there are not a lot of clear cut answers. Repairs are often treated on a circumstantial basis, and more often then not, it boils down to who’s willing to fight more: the landlord or the tenant? With that said, let’s look at the specifics to give a broader understanding.

The Residential Tenancy Act does not deal specifically with repairs and maintenance, often causing confusion on the part of both landlord as well as tenant. To find answers, you must look at public health laws; landlords do have a responsibility under public health laws to ensure that their properties are both sanitary, and safe to live in. Legally, it is the landlords job to repair and maintain a tenant’s space. Often, a lease agreement may state otherwise, but the truth of the matter is that it is the landlord’s obligation. Repairs and maintenance are generally looked at as the cost of doing business. This includes any appliances that came with the rental space, as well as the common grounds. But can it really be that black and white?

In short, no, it’s not that black and white. So, before you go and handle all the maintenance and repairs yourself as the landlord, you’ll want to be aware of a few facts. For starters, it is the tenant’s responsibility to keep the unit relatively clean and liveable, and a landlord is not responsible for a tenant’s personal belongings i.e. furniture, clothing or electronics. However, if a landlord directly caused damage to a tenant’s belongings, then yes, the landlord will be held responsible. For example, if a landlord fails to fix a plumbing problem, and a pipe bursts flooding a tenant’s space and ruining personal belongings in the process, then the landlord must pay for the repairs/replacement. Of course, this does go both ways; if a tenant directly causes damage to the property via irresponsible or destructive acts, then the landlord will be within their rights to pass the bill for repairs on to the tenant. Alternatively, the landlord may choose to charge the tenant when they are ready to move, or they may choose to keep some or all the security deposit to cover the costs.

Repairs and maintenance are often handled from a “common sense approach”. This approach would dictate that any “big” repairs are the responsibility of the landlord i.e. installing new light fixtures when the old one’s break, replacing flooring, painting the walls etc. On the other hand, “small” repairs and maintenance are generally handled by the tenant i.e. changing light bulbs, regular cleaning, replacing curtains etc. Here is a more complete list:

The landlord must ensure that:

  • the living space is safe and meets minimum housing, fire, building, and health standards;
  • the heating, wiring, and plumbing work;
  • the structure of the building is maintained including windows, doors, walls, roofs, ceilings, floors, and stairs;
  • the fridge and stove work; and
  • the common areas are clean (i.e. hallways, stairs, front foyer and parking lots).

Moving on to the tenant’s responsibilities. The tenant is typically obligated to:

  • keep the property clean;
  • inform the landlord of any needed repairs;
  • repair any damage they cause to the property; and
  • make small repairs (for example, changing light bulbs or unplugging drains).

The Residential Tenancies Act states that to enter a tenant’s unit to do repairs, the landlord must give notice to the tenant, unless the situation is deemed an emergency. Moreover, if there are repairs and maintenance that must be done, the tenant is expected to notify the landlord in writing, and arrange a time when the landlord can enter the unit to handle the repairs.

So, maintenance and repairs are generally the responsibility of the landlord, but it’s also a joint effort, and the landlord does have rights in the case of a bad tenant destroying property. With that said, the eviction process can not only be a nightmare, but take an unfair amount of time for a landlord. More reason to boost resident retention when you’ve found quality tenants. The easiest way to handle these matters, is to have a professional property management team handle your investment. Please contact CMG Toronto with any questions you have related to property management and landlord/tenant negotiations.

Contact the the best property management company in Toronto.

Image Source: http://www.ppbec.org/better-homes-through-home-repair/