Rent Is Due…What Landlords Should Do?
If you can’t make rent, you’re not alone. Nearly one third of all Landlords renting their commercial, retail properties or apartments in the United States couldn’t make rent on April 1, according to the Wall Street Journal.
As landlords, we’re in a tough position. With millions losing jobs due to the Coronavirus and many cities and states declaring eviction moratoriums, a lot of tenants won’t be paying rent this month. And while they will eventually have to pay the rent back, the big question is when?
With no foreseeable end to this crisis, many landlords are fearful that they won’t be able to maintain their properties, pay their insurance and property taxes, and make their mortgage payments.
Personally, I’m looking at this situation from multiple angles. I have been working as a property insurance expert for years, providing policies rich with coverage for my clients in real estate markets across the country. Most of these areas i operate in, have issued halts on evictions or grace periods to give tenants extra time to pay.
Many LA cities have declared that landlords must offer rent forgiveness and will allow tenants 6 to 12 months to pay their back rent, after the state of emergency is over.
As an attorney, landlord, and all around kind-hearted person who wants to do the right thing, I have spent quite a bit of time thinking about what to do.
Landlord’s Guide To Loss of Rent
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So, here is everything you need to know about Loss of Rental Income due to Coronavirus Pandemic:
1.What is loss of rent insurance?
Loss of rent insurance covers the money you would lose, as a landlord, if your property becomes uninhabitable due to an insured event.
Loss of rent insurance enables you to claim back the lost income. Loss of rent insurance is an optional cover type that you can add to your landlord insurance policy for an additional premium.
2.Does loss of rent insurance cover COVID-19-Related Losses??
It might – or not. Each policy is unique, but landlord insurance, building liability, building property insurance may offer something.
Commercial property insurance policies often provide coverage for lost business income. For business interruption losses, however, there will likely be two main hurdles to coverage.
The first hurdle will be the requirement in most property policies of “direct physical damage to covered property.” Typically, to trigger business interruption coverage under a property policy, there must be a “direct physical loss of or damage to property” at a location covered by the policy.
If a property has been shuttered merely due to fears, but the building remains habitable, the direct physical loss requirement is likely not satisfied.
However, if there is a demonstrable presence of COVID-19 in your business location or in one the locations of your suppliers the requirement of “direct physical loss of or damage to” a location covered by the policy may be satisfied.
Furthermore, if a location covered by your policy has sustained some physical damage as a result of a lack of office maintenance or a lack of power or other utilities to the office as a result of COVID-19, the requirement of “direct physical loss of or damage to” a location covered by the policy may be satisfied by that as well.
With respect to whether the presence of COVID-19 in a covered location is a “direct physical loss of or damage to” covered property, the following cases are helpful for policyholders:
- Murray v. State Farm Fire & Cas. Co., 203 W. Va. 477,509 S.E.2d 1, 16-17 (1998) (“Losses covered by the policy, including those rendering the insured property unusable or uninhabitable, may exist in the absence of structural damage to the property”).
- Matzner v. Seaco Ins. Co., 9 Mass. L. Rptr. 41, 1998 WL 566658 (Mass. Super. Aug. 12, 1998) (“direct physical loss” was ambiguous; thus carbon monoxide exposure would come under that definition);
- Gregory Packaging, Inc. v. Travelers Property and Casualty Company of America, No. 12-cv-04418, 2014 U.S. Dist. LEXIS 165232 (D.N.J. Nov. 25, 2014) (a release of ammonia from a refrigeration system which rendered Gregory Packaging’s buildings uninhabitable constituted a “direct physical loss” sufficient to trigger business interruption coverage under that policy);
3.What are the benefits of loss of rent insurance?
When you rely on rent paid by your tenants to cover your own bills, it’s important to make sure that the properties you let remain in good working order, but sometimes things happen that are outside of your control.
The future will continue to change how insurance responds to events. The current COVID 19 situation is challenging all affected parties.
- Businesses that employ and rent space have been ordered by the government to shut down in order to help slow the spread of COVID 19.
- Property owners who expect to collect rent from their tenants that are now unable to operate due to order of the government.
While the loss of rent insurance covers you if your property becomes uninhabitable through no fault of your own, it is important to understand under what circumstances rent loss insurance kicks in, and what it will not cover. Rent loss insurance will not cover damage due to owner negligence.
- Because insurance law is almost exclusively an issue of state law, the answer to the question of whether the presence of COVID-19 in your office or the offices of your suppliers constitutes a “direct physical loss or damage” to covered property will likely vary from jurisdiction to jurisdiction.
- Some specialized insurance policies and extensions of coverage added to standard property insurance policies including those sold to businesses in the hospitality and healthcare industries expressly provide insurance coverage for losses caused by “communicable or infectious diseases” without requiring physical damage to insured property. Therefore, the language of your policy is key in determining whether you may have coverage.
- Additionally, many commercial property insurance policies provide coverage for business income losses sustained when a “civil authority” prohibits or impairs access to a location covered by the policy. Depending on its specific wording, a policy’s “civil authority” coverage may or may not require physical damage to covered property. Accordingly, in the event that a federal, state, or local governmental authority limits or prohibits access to or from locations covered by your policy, your business may have “civil authority” coverage for income losses.
4.How do I get loss of rent insurance?
Loss of rent insurance is generally referred to as loss of rental income insurance. You can add this to your residential, commercial or multi-property landlord insurance policy, for an extra layer of cover. As the region’s one of the most experienced property insurance experts, i can help you with your Loss of rent insurance and concerns.
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