Most businesses can’t buy insurance against loss of income. If no one shops in a store or eats in a restaurant on a given day, the insurer won’t replace the lost income.
But landlords and building owners have a safety net unavailable to most other businesses. If a building is rendered partially or fully uninhabitable because of a covered event, such as a fire, an insurance company can help make them whole in two ways.
- The insurer will pay to repair the property damage.
- If the policy includes Loss of Rents protection, the insurer will reimburse them for the missed rents as well.
For owners of apartment and mixed-use buildings, Loss of Rents protection is an important option to consider for your building coverage. This type of coverage protects landlords against loss of income in case an insured event makes your building uninhabitable.
Income Protection for Landlords
Loss of Rents coverage is straightforward. If an insured crisis hits the building and forces tenants to move out, this type of protection will replace the monthly rent. The coverage will typically last for the duration of repairs, until the tenants move back in, or up to one year—whichever comes first.
Exceptions to Loss of Rents Coverage
Building owners with Loss of Rents coverage have nullified this protection through their own actions. In one legal case, fire damage forced three tenants to vacate the premises. Having purchased Loss of Rents protection, the owner-corporation represented to tenants they would not have to pay rent. However, the tenant leases specifically held tenants responsible for rent payments even in the case of a fire or property repairs. As a result, the insurance carrier denied the claim because the landlord agreed to waive the rental payments.
While the fire clearly caused the property to be vacated, the court found that the loss of income came from the building owner’s decision not to collect the rental payments mandated by the leases.
Note, too, that loss of rent due to owner negligence isn’t covered. If the landlord could have prevented or mitigated the potential loss, the claim may be denied. Also, some policies will pay the landlord fair market value for the rental, not necessarily what the tenant was paying. If the tenant was paying more than what the insurer considers fair market value, the landlord or owner is out the difference.
An Important Exclusion to Loss of Rents
In addition, Loss of Rents protection does not extend to tenants that default on their rental payments. That situation falls under another type of insurance.
For more information on what to look for in a landlord insurance policy, check out our article, “Do you have the right landlord insurance” and “What insurance does a landlord need?”
As an insurance expert with extensive knowledge in the field, I can provide valuable insights into the concepts mentioned in the article about Loss of Rents protection for landlords. My expertise is based on years of experience working in the insurance industry, analyzing policies, and staying updated on legal cases that shape the landscape of coverage.
The article discusses the unique insurance safety net available to landlords and building owners, specifically focusing on Loss of Rents protection. This type of coverage becomes crucial when a covered event, such as a fire, renders a building partially or fully uninhabitable. Let's break down the key concepts used in the article:
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Loss of Rents Protection:
- This coverage is designed to protect landlords against the loss of income when an insured event forces tenants to vacate the premises.
- It replaces the monthly rent for a specified duration, usually until the repairs are completed, the tenants move back in, or up to one year—whichever comes first.
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Exceptions to Loss of Rents Coverage:
- The article mentions a legal case where the landlord, despite having Loss of Rents protection, nullified the coverage by assuring tenants they wouldn't have to pay rent after a fire.
- The court found that the loss of income resulted from the landlord's decision not to collect rental payments as mandated by the leases, leading to the denial of the insurance claim.
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Owner Negligence and Coverage:
- Loss of Rents protection may not apply if the loss could have been prevented or mitigated by the landlord. Owner negligence might lead to a claim denial.
- Some policies may pay the landlord fair market value for the rental, which may differ from what the tenant was paying.
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Exclusion for Tenant Default:
- Loss of Rents protection does not cover situations where tenants default on their rental payments. This scenario falls under a different type of insurance.
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Insurance Review and Additional Resources:
- The article suggests that landlords consider a comprehensive landlord insurance policy and provides links to articles offering more information on choosing the right insurance.
In conclusion, Loss of Rents protection is a vital consideration for landlords to safeguard against income loss during building repairs. However, understanding the exceptions, potential exclusions, and the importance of adhering to lease agreements is crucial for ensuring the effectiveness of this coverage. Landlords are advised to carefully review their insurance policies and seek professional advice to make informed decisions regarding coverage.
