Sued by tenants - litigation / liability issues

[Alex_1]

A large damages judgement not covered by insurance could result in a lifetime's accumulation of wealth being wiped out in an instant.

I realise that most landlords will have $5m, $10m or even $20m worth of public liability insurance.

However, I do have some questions...

Obviously, on being notified of any potentially large claim, the first thing the PL insurance company will do is search frantically for any legal excuse not to pay it at all, and leave the property owner/policyholder fully exposed.

Can anyone think of any circumstances where a tenant might successfully sue a landlord for something, and the resulting damages WOULDN'T be covered by the PL policy? I assume incidents resulting in serious injury or death would result in the largest claims (in the $millions), and presumably in every instance the landlord will be accused of some sort of negligence. Would PL insurance still cover this?

If the investor uses a property manager to manage the portfolio, the manager (not the owner) will probably do most of the actual property inspections. If the manager misses something that results in tenant injury and a damages judgement against the owner, how does this work? Who is liable?

Has anyone on this forum been sued by a tenant? If so, what happened?

 

[NigelW]

Originally posted by Alex_1
A large damages judgement not covered by insurance could result in a lifetime's accumulation of wealth being wiped out in an instant.

I realise that most landlords will have $5m, $10m or even $20m worth of public liability insurance.

However, I do have some questions...

Obviously, on being notified of any potentially large claim, the first thing the PL insurance company will do is search frantically for any legal excuse not to pay it at all, and leave the property owner/policyholder fully exposed.

Can anyone think of any circumstances where a tenant might successfully sue a landlord for something, and the resulting damages WOULDN'T be covered by the PL policy? I assume incidents resulting in serious injury or death would result in the largest claims (in the $millions), and presumably in every instance the landlord will be accused of some sort of negligence. Would PL insurance still cover this?

If the investor uses a property manager to manage the portfolio, the manager (not the owner) will probably do most of the actual property inspections. If the manager misses something that results in tenant injury and a damages judgement against the owner, how does this work? Who is liable?

Has anyone on this forum been sued by a tenant? If so, what happened?

Alex

Good question, but unfortunatley not one that admits of an easy answer...

Your question raises 2 issues or stages if you like.

Firstly, what event has occurred and was it CAUSED by the landlord's negligence or failure to provide a reasonably safe and solid property and secondly what does the policy say, or not say, about that event?

A related question, which you should hopefully be asking yourself (as you are now) PRIOR to any unfortunate event is:

a) am I providing a safe property for people (and if not get it fixed up pretty darned quick); and
b) as part of my investment and wealth creation planning should I be using any structure or combination of structures which may limit my personal liability or quarantine certain assets (say the family home) from potential lawsuits...

As to a) there's been a relatively recent high court decision (the name of which escapes me just now but there's a thread where on posted about it somewhere on the forum) on landlord's liability and they've struck a much more reasonable line than in the earlier case (Northern Sandblasting - where the landlord copped it despite employed an electrician to do the work).

Basically the principle is this: you don't have a duty to protect people from their own stupidity but the house should be safe for reasonable habitation. That definitely means employing skilled contractors for danger areas and complying with any local by-laws or regulations.

Danger areas I forsee are: pool fencing, electricity and gas, glass in doors and bathrooms, broken & uneven walkways...but I'm sure there are others...

As I said, good question but a complex answer involving considerations of your risk tolerance, your structuring decisions and your risk management and asset protection strategy.

All of which you should talk to your advisers about.

Good luck
N.

 

[Alex_1]

Thanks Nigel - that's an excellent answer.

My main concern is that, while I'm good with the "number crunching" aspect of property investing, I'm not by any means an expert in building/reno trades.

I heard of one case where a landlord was successfully sued by a tenant who was injured by breaking a glass window. Apparently the glass, which had been installed years ago, complied with the glazing safety standards of the time, but not current standards.

To be quite honest, I doubt I could look at a pane of glass in an older house and say whether it was up to current glazing safety standards or not. And I doubt many professional building inspectors generally look for "hidden" faults like this which aren't clearly visible, but which might result in legal problems for landlords. And I know most property managers doing routine inspections wouldn't pick up these sorts of things.

I'm not aware of anyone providing this service, but I reckon a good service to offer property investors (probably by someone already trained as a building inspector) would be a "Rental Property Safety Audit."

This would be somewhat different to a routine pre-purchase inspection, and would focus on identifying any safety issues which might cause problems for tenants. I guess it would be similar to a "Workplace Health and Safety Inspection".

Maybe one day someone might offer this service... any building inspectors on this forum want to consider it?

 

[Kristine..]

Alex

Please let me add the voice of sweet reason.

When I had a shop, my Public Liability for $10 million cost a few hundreds of dollars per year.

As a landlord, by Public Liability for $10 million for each property osts a few hundreds of dollars per year.

Do you get my drift?

Why is Public Liability insurance so cheap?

Yep! It's because relatively few claims are made on it each year.

So ...

Keep your properties well maintained. If the tenants or your property manager say

'The steps are a bit rickety'

or

'The hot water is fickle'

or

'The latch on the pool gate is unreliable' (note: never buy a property with a pool)

or whatever

attend to it straight away, only use the qualified, registered, insured tradespeople on file with the property department, always get receipts to prove the work was done, and sleep well at night.

Prudence and good management are the key words. Yes, someone could fall through your 1960s plate glass door. But it complied with building regulations then, and just because the Building Code of Australia now requires something different, there is no retrospective requirement for you to replace all glass etc.

Swimming pool barriers are under retrospective legislation for obvious reasons.

If you are concerned about these things from your own personal perspective, then make sure that the properties you buy are modern, that the property managers you engage are experienced, and that you keep good maintenance programs and adequate insurance.

And don't let your anxieties get in the way of your progress. Remember, if you have a nice property to rent, you are not being a greedy grasping landlord, but a nice person who is making a nice home available to a nice family who will enjoy living there.

If you didn't own it, they couldn't rent it, so don't worry! Be happy being a landlord.

Hal Todd used to say

Today is the tomorrow you worried about yesterday. Nothing's happened, nothing will. Be happy.

(secret hand signal)

Go buy property and enjoy the fruits of your labour!

Cheers

Kristine

and Brains ... Zen!