In today’s world it’s important to think about your liability as a landlord. In this post we describe some of the things to think about as a landlord with respect to liability issues that could come up. We also offer a checklist of things to think about that you can download and keep with your rental property materials for each new rental property to you start to lease out.
Leann and I went for years renting out our homes with out thinking about the liability we were incurring by doing so. It’s important to understand the things you have at stake in your personal life for both yourself and your family when you decide to become a landlord. If you are renting out your property as a sole proprietor (which is the default if you don’t have your property in another entity) you are really putting yourself and your family at risk. If something happens to your tenant or one of their guests while they are renting from you (and the right circumstances are in play) they could potentially come after you and your families property for compensation for any damages they may have incurred. For this reason we recommend placing your property into a legal entity, an LLC for instance, that provides you with some protection for your personal property (including homes, bank accounts, vehicles, etc..).
It didn’t dawn on us until we took the time (after several years in) to sit down and pay the small fee to speak with a real estate attorney about your blossoming side project of renting our properties out. Each person is different with respect to the risk they are willing to take on and the situation they are in, but I would highly recommend picking up a few books on the topic as well as sitting down with a professional (read that as an attorney that specializes in real estate) to understand what your specific situation is and how you can best protect yourself. We recommend thinking about putting each of your properties in it’s own legal entity such that each is independently protected and considered separate from the other. Doing any of the above will require that understand how to do your due diligence when it comes to signing any documentation as an agent of the company and keeping each entity in it’s own account with respect to all things… especially bank accounts. Your attorney, or some great books on the topic, can fill you in on the specifics here.
Landlord Liability Issues to Consider (download this checklist below)
- Tenant Injuries – Have you taken steps to remove any obvious hazards to your tenants?
- Lead Paint – Do you have an older property that you are renting out, have you given your tenants a lead paint disclosure?
- Mold – Have you ever had any problems with mold in the rental property?
- Secondhand Smoke – Did you yourself or one of your tenants smoke in the rental property?
- Fires – Does your rental property have working smoke detectors? Have you included in the lease the wording that makes it obvious that the responsibility of upkeep on those detectors is transferred to the tenant?
- Pool / Spa Injuries – Do you have a pool or spa on site at the rental property? Have you disclosed the law with respect to pool fences and the importance of keeping them locked?
- Crime on Premises – Did you properly screen your tenants including a background criminal check?
- Other Environmental Hazards – In general have you thought about the environment of your rental property and if there are any obvious risks?
- Negligence Injuries – Have you taken the proper precautions that a “reasonable person” would take to remove risks from the rental property?
- Dog Bites – Have you allowed your tenants to keep a dog (or other pets) on premises? Have you specified the breed? Have your tenants put up “danger keep out” signs?
Landlord Liability Checklist
- Every Landlord’s Legal Guide by Marcia Stewart
- Dog Bit Law Website
- Essential Guide to Real Estate Leases: With Forms by Mark Warda
Liability means being bound and obligated to pay legal debts. A person that is legally and financially responsible for something is assumed legally liable. Liability is an issue of both civil and criminal law – as defined by Wikipedia.
A landlord is an owner of real estate (be it a house, condo, or apartment, etc..) which is rented or leased to a person or entity (a business for example). The person that is renting or leasing the real estate is known as the tenant (or renter / lessee).
Limited liability company (LLC)
An LLC is a type of enterprise (an entity) that combines aspects of a partnership and a corporation. This hybrid business entity is designed to provide limited liability to its owners as well as certain tax benefits. It does not however imply that owners are always absolutely protected from personal liabilities, especially in cases of fraud or misrepresentation.