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Landlord Insurance – Drug labs & death of a tenant

Are landlords typically covered under landlord insurance if their tenant installs a meth lab?

Illegal drug manufacturing can cause considerable damage to rental properties.

From an insurance perspective, any damage caused by drug cultivation such as holes in walls and doors through to damage to carpets and floor coverings is considered a malicious act, and likely to be viewed as an insured event.

Most landlord insurance policies are designed to protect against this kind of damage.

Many landlord insurance policies stipulate that malicious damage claims must be accompanied by a copy of the police report or the name of the police station where the report was made.

A good landlord insurance policy will generally also cover arrears and loss of rent while the property is cleaned and the period of vacancy until a new tenant is found.

Or if the tenant dies on the property (this may, or may not, be linked to the former problem)?

Landlord insurance is available to cover the loss of rental income due to the death of a tenant – provided that tenant was the only person named on the lease.

What prospective problems are likely to arise from these two scenarios (property damage, police requiring access to the property, soil poisoning, etc…)?

  • Death of a tenant

    The death of a tenant is a tragedy for their family and friends and a time when landlords need to show true compassion.

    Getting the balance right between compassion for the tenant’s family and minimising financial loss for the landlord can be challenging under the circumstances.

    Landlords will need to cooperate with police and ensure the tenant’s belongings are taken care of, the property is cleaned and all appropriate paperwork is obtained.

  • Drug lab

    Landlords will firstly need to notify the police of any illegal activity which has occurred on the property and co-operate accordingly until investigations have been completed. This may take any length of time which may lead to loss of rent.

    In order for a landlord to lodge their claim successfully, it is important they take all reasonable steps to provide the necessary paperwork.

    Landlords also need to clear and clean the property in order to re-let in a timely manner once police investigations are completed and have been given the all clear.

How can landlords mitigate the risk of this happening in the first place? (drug labs)

From the outset, landlords should thoroughly check potential tenants’ references during the screening process.

Speak with previous landlords or property managers and ask specifically whether they had any issues with the tenant in the past.

A landlord has many responsibilities to their tenant and their rental property which requires a significant amount of time and commitment.

If your property is in an area that is far from where you live, or you cannot commit sufficient time to manage the property yourself, appointing a property manager might be an appropriate solution.

A property manager can carry out responsibilities on your behalf, such as regular inspections, which will increase the chances of detecting any illegal activity, assist landlords to lodge insurance claims as soon as possible and potentially mitigate loss.

Landlords should look for:

  • Modifications to the property
  • Unusual items or activity
  • Malicious damage to the property.

A landlord should consider a tailored landlord insurance policy that covers them for both malicious and accidental damage, their legal liability and the loss of rental income.

A standard building and contents insurance policy generally won’t cover landlords for many of these risks.

When a claimable event does happen at a rental property, the onus will ultimately be on the landlord to prove the loss.

What can landlords expect if it does happen? (police requiring access to the property, repair costs, loss of rental income as a result of the prior)

Cultivating illegal drugs can cost landlords thousands of dollars in repairs and subsequent lost rent.

Some hydroponic systems or temporary drug laboratories require specific modifications to the property.

This may include pipes or hoses that are filtered through the roof or a designated man hole.

It’s important landlords put preventative measures in place to minimise loss of rental income as a result of damage by tenants, including:

  • Present an attractive property
  • Appoint a property manager
  • Conduct regular property inspections
  • Seek specialised landlord insurance

What should landlords do if it does happen?

If you suspect illegal drug manufacturing is taking place at your rental property, you should contact police immediately.

If you need to make an insurance claim, it is likely that your insurer will ask for specific information and documentation that relates to the loss. Passing as much information as possible to the police can assist in processing the insurance claim.

Are there any other prospective issues (perhaps malicious damage by tenants?) that landlords should be aware of, and know how to respond to?

The most common risks for a landlord are loss of rental income, malicious damage by a tenant, theft, accidental damage and legal liability.

  • Loss of rental income

    In instances where malicious damage has been caused to a property, a loss of rental income may result during the time required for the property to be repaired or cleaned. Loss of rental income can also result from absconding tenants, defaulting payments, death of a sole tenant, failure to give vacant possession or a court awarding a tenant a release from lease obligations due to hardship.

    In instances where malicious damage has been caused to a property, a loss of rental income may result during the time required for the property to be repaired or cleaned. Loss of rental income can also result from absconding tenants, defaulting payments, death of a sole tenant, failure to give vacant possession or a court awarding a tenant a release from lease obligations due to hardship.

  • Malicious damage by a tenant

    Malicious damage covers everything from holes punched in walls and doors that have been kicked in, through to intentional damage to carpets and floors.

  • Accidental damage

    This covers unintentional damage to a property. It might include the accidental breakage of a window or the spilling of red wine on a white carpet. Accidental damage may also cover damage caused by small children, but does excludes gradual “wear and tear” that has been sustained over time.

  • Legal liability

    This covers expenses incurred if a law suit arises as a result of a tenant suffering bodily injury or property damage or loss where the landlord is found responsible.

Seeking a specialised form of landlord insurance can assist in minimising the financial impact of damage caused by tenants.

– Comments from Belinda Butler, Distribution Manager, Terri Scheer Landlord Insurance Specialists

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