7 Smart Ways Landlords Can Reduce Their Liability
The majority of landlords are subject to a variety of risks from time to time. In most cases, landlords will be held responsible for any resulting injuries if it can be proved that they acted negligently and that their negligence led to the injury. The risks can be frivolous or legitimate, ranging from injuries, faulty appliances, harassment, drug abuse, or a tenant being bitten by a neighbor’s dog.
The list goes on, but due to such incidents, landlords are bound to remain cautious and become transparent with their tenants when renting out units. This is to avoid lawsuits and financial distress, with the former being the most devastating.
So, can a landlord implement any strategies to reduce liability? Yes, indeed, there are numerous strategies, and we’ll discuss six of the best approaches:
Form A Limited Liability Company (LLC)
Imagine the cost of an accident that exceeds your insurance policy. You’ll be compelled to cover the remaining charges in most cases.
For instance, if one of your tenants suffers injuries on your property and the damages amount to USD$3 million, paying USD$2 million from your pocket wouldn’t be ideal if your insurance policy caps at USD$1 million.
It only makes sense to separate your business assets from your personal ones to avoid lawsuits from such occurrences. There are numerous ways to do this, like putting your assets in your child’s or spouse’s name to protect yourself.
However, the ultimate solution is to consider forming a limited liability company (LLC). It requires appointing a registered agent to handle correspondence from the government authorities. And as you can guess, this comes at a cost. Thus, you may wonder, “Can I be my own registered agent for my LLC?”. The short answer is yes, but it’d help to read further on the matter to understand the dynamics. Moreover, you must learn how to protect your assets and become a less attractive target.
Another benefit of forming a legal liability company is protecting a portion of your income from taxes.
Adhere To Inspections And Quality Repairs
As a landlord, inspecting and fixing repairs as soon as possible is wise. You’re also responsible for ensuring repairs are efficient. Failing to repair faulty wires and leaving mold untreated can result in legal trouble.
The best thing to do is to ensure tenants rarely complain. You can do this by performing inspections regularly, and in case part of your property needs repair, ensure you do it promptly.
You can also hire an in–house contractor who’ll handle overall inspections and repairs on your behalf. An in-house property manager can also go a long way in screening tenants to ensure that only the right ones occupy your property.
The benefits of keeping records such as receipts, reports detailing inspections, notices to tenants, and tenant maintenance requests can never be overemphasized. Keeping records is a surefire way to document proof and defend yourself in court.
If manual records aren’t your preference, you can keep electronic versions of these documents as an alternative. Electronic records management provides greater legal certainty, enhanced security, and efficiency in operational compliance.
Partner With A Reliable Insurance Company
Most people don’t like paying insurance premiums because they view the process as a means to spend their money for nothing. But here’s the thing: the future is uncertain for everyone, and unexpected events occur regardless of your financial position, making things unravel unexpectedly.
Landlords are no exception. In case of any arising claims or unforeseen events, insurance comes in handy to offer a payout so you can move forward.
Insurance coverage should protect landlords against the following:
- Fire coverage
- Basic property insurance
- Flood and storm insurance coverage
- Loss of rental income
- Libel and slander from tenants
- Discriminatory lawsuits filed by tenants
- Vandalism and malicious damage by tenants
As a rule, tenants are encouraged to carry individual renter’s insurance because it’s cost-efficient. However, landlords should always verify that their tenants have up-to-date insurance coverage.
Restrict Tenants From Keeping Pets On Your Property
Preventing tenants from keeping pets shouldn’t mean landlords hate animals. But for liability and insurance purposes, ensuring tenants don’t keep pets on your premises makes sense. Insurance companies are vigilant regarding lawsuits from pets like dogs severely harming people because they pay the victims millions of dollars should such incidents occur.
Consider The Services Of A Real Estate Attorney
Real estate laws are complex, and a single misstep could lead to significant losses. A real estate attorney comes into the picture at this point. They’ll help you navigate all real estate legal requirements and avoid potential landmines.
In addition, if you need to draft letters to increase rent in your rental apartments or undertake specific transactions, real estate attorneys will always come in handy.
Since you now understand how landlords can reduce their liability and its importance, it’s time to implement some of the abovementioned strategies to avoid tenants’ lawsuits and ensure everyone is safe. Forming an LLC would be prudent to reduce liability further and reach your dreams as a landlord. This is the most appropriate and least expensive method. The benefits include protecting your assets and reducing risks associated with starting your own business.