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Embracing the Trend: Mandatory Tenants’ Insurance Offers Mutual Benefits

Investing in fostering a positive relationship with tenants can be a game-changer in avoiding costly legal battles. Mandatory tenants’ insurance appears as a win-win solution, offering advantages for landlords, property owners and tenants alike, and its adoption may prove instrumental in preventing conflicts down the line.

For landlords, implementing this requirement adds an extra layer of protection against potential litigation costs. Tenants covered by insurance are less likely to resort to legal action for compensation if there is a loss. Even if a landlord successfully defends themselves in court, navigating the legal process incurs significant expenses. On the tenant’s side, getting their insurance policy is the most effective way to safeguard their belongings in unforeseen circumstances, simultaneously reducing the number of claims on the property owner’s insurance policy.

Consider the scenario where a tenant-caused fire results in substantial property damage. Here’s how tenants’ insurance can play a pivotal role in alleviating stress and financial strain:

Property Damage & Repairs: Contrary to common assumptions, typical landlord property insurance often excludes damages caused by residents. Enforcing tenants’ insurance minimizes the likelihood of legal disputes over repair costs and shields landlords from expensive legal fees.

Personal Property & Displacement: Tenants’ insurance covers temporary housing costs and property damage, addressing concerns about belongings and property im- provements. This is especially crucial when tenants may try to attribute responsibility to the landlord. For a relatively low premium, tenants can protect personal items, with the National Association of Insurance Commissioners (NAIC) reporting an average monthly cost ranging between $15 and $30. Moreover, tenants may have to move during pro- longed repairs, and tenants’ policies often cover hotel and restaurant expenses during the restoration period.

According to recent statistics from the NAIC, tenants’ insurance policies are an affordable investment compared to the potential costs of replacing all belongings in case of a disaster. Additional coverage for valuable items such as family heirlooms, jewelry or collectibles is available at a modest extra cost.

While implementing an insurance requirement may seem daunting, evolving practices make it more attractive and feasible for property managers and tenants. Some landlords work with commercial insur- ance brokers to design tenant insurance offerings that provide incentives for both parties, simplifying the insurance pur-chasing and lease agreement processes.

In addition to mandating tenants’ insurance, landlords should consider other measures to minimize liability and avoid indirect damages when amending their lease agreements:

Common Lease Agreement: Opting for a standardized lease agreement for all tenants ensures clarity and consistency in rules, particularly regarding insurance, indemnification and hold-harmless clauses. While adjustments may occur, having a single lease agreement reduces potential headaches and liabilities.

Rental Abatement Wording: Examining the rental abatement clause is crucial post-covered loss, determining whether a tenant can suspend rent payment until their space is repaired. Landlords should carefully review and articulate rental abatement terms in their lease agreements.

Despite the inevitability of damages caused by tenants, strategic and cost-effective options like mandatory tenants’ insurance exist to mitigate risks for both tenants and property owners. Consult with your insurance advisor to explore the benefits of implementing a tenants’ insurance program for your properties today.

Frank DeLucia
Senior Vice President
Hub International Northeast
frank.delucia@hubinternational.com
(212)338-2395