Landlords need to protect themselves against lawsuits to a high degree, perhaps more than any other business owner. Unlike other industries, courts tend to favor tenants, especially in difficult situations. Now that the world is experiencing the COVID-19 pandemic, courts are especially sympathetic toward tenants facing eviction, even when it’s clearly the tenant’s fault.
Tenants don’t just sue their landlords over evictions. The truth is, you never know what will drive a tenant to file a suit. Sometimes tenants file lawsuits that don’t make sense, but you still have to take time out of your day to show up in court.
Lawsuits are costly and time-consuming, so you need to protect yourself if you want to avoid the inconvenience of litigation. Here’s a good starting point:
1. Require Your Renters To Carry Renters Insurance
To get your mortgage, you probably had to show proof of homeowners insurance, if not additional types of insurance. Renters have their own type of insurance designed to cover losses and damage to their personal property. It’s called renters insurance and if you want to protect yourself from lawsuits, you need to require tenants to hold a policy.
Renters insurance protects tenants’ personal property when it’s damaged by things like natural disasters, burglaries, and random accidents. For example, if the sewer backs up into the house and the flood destroys a tenant’s musical instruments, they can file a claim to recover the cash value of their instruments.
Renters insurance will cover relocation expenses
Relocation is another expense renters insurance covers. If your property becomes unlivable, a tenant with renters insurance can get a hotel covered until you fix the problem. If the problem can’t be fixed, renters insurance will pay for the tenant’s moving expenses. Some policies will even pay the additional cost of increased living expenses if their new rent is higher.
In some states, landlords are required to pay for a tenant’s accommodations if their main rental becomes uninhabitable. Tenants can sue if their landlord refuses to provide alternative housing.
If you don’t want to risk having to pay for your tenants’ hotel stay while you fix a serious plumbing issue, require your tenants to carry renters insurance.
2. Create a Strong Lease With an Attorney
Your lease is only as strong as your weakest clause. If you forget to include a legally required clause, your lease could end up being no better than swiss cheese in court.
The only way to create an iron-clad lease is to consult with an attorney. While you can find lease templates online allegedly created by lawyers, templates are too generic to rely on for the basis of a tenancy agreement.
For example, unlawfully withholding a security deposit is one of the top reasons tenants sue their landlords. You might think you’re fine if you aren’t withholding your tenant’s deposit. However, a lease containing illegal security deposit terms can also justify a lawsuit.
Lease mistakes often have far-reaching consequences. Creating your own lease makes you susceptible to losing lawsuits that you would otherwise win if your lease were designed by an attorney.
3. Be Clear and Direct to a Fault
Some people feel threatened by direct communication, but you can’t be vague or ambiguous with your tenants. For example, if your tenant misunderstands something you’ve said, they might act on that misunderstanding in a way that violates the lease. If you try to evict them, they might sue you – and win.
Once you get to court, it will be your word against theirs. Did you really give your tenant permission to install a zipline in the ceiling? If the judge thinks you did, you won’t easily change their mind. Verbal agreements are considered legally binding agreements.
Make every effort to be clear and concise with your tenants in all of your communications. Try to avoid text messaging and only use email for electronic correspondence. Make sure every phone call is accompanied by a follow-up email to provide a permanent record of the points discussed. Leave no room for unnecessary confusion.
Being a Landlord Is Risky
Being a landlord is a risky business. Although, owning rental property is appealing because it’s one of the best ways to amass wealth over a long period of time.
Tenants have rights, as they should, but often those rights are abused and taken advantage of in the legal system. No matter how great your tenants are, most are just one upset away from filing a lawsuit. While you can’t prevent all lawsuits, you can mitigate the potential for lawsuits arising from common misunderstandings.