Incorporating liability clauses in your lease can reduce property liability.
As a landlord, you carry the full burden of liability for your multiple rental property. To minimize your risks, try to eliminate as much of this liability as possible. The best protection comes from separating the rental property from yourself and operating it as a business. By filing your rental property as a limited liability company, the business assumes all liability and you do not assume liability personally. For multiple rental properties, you can further offset your liability by purchasing umbrella insurance policies. Also, use liability contracts for tenants and the people working on your behalf.
Instructions
1. File your rental property as a limited liability company. Fill out and submit the form titled "Articles of Organization" with your state, along with the appropriate filing fee. By filing as a business, if you are ever sued, your personal assets won't be at stake.
2. Maintain your property and keep it free from hazards. Hire licensed and bonded contractors to do major work that involves things such as construction, electrical and plumbing. Never allow tenants to do any work to the property, because you can be held liable if they fail to do the repairs correctly.
3. Purchase insurance policies on each individual structure, and consider buying umbrella policies to cover multiple rental properties. For example, homeowner liability coverage policies typically cover up to $300,000, while umbrella policies can extend that figure to an additional $1 million. Try to obtain policies that cover every possible situation. Examples include homeowners insurance, renters insurance, building insurance, contents insurance, legal insurance, loss of rental income insurance and liability insurance.
4. Write liability clauses in your rental contracts. Limit your liability by addressing topics such as not allowing tenants to have dangerous animals, making tenants responsible for damages resulting from their negligence and not allowing unauthorized individuals to take up residence on the property.
5. Write liability clauses into your contracts with contractors. Contractors can be held liable in some situations, such as injuries they cause to unauthorized people they invited onto your property and for injuries that resulted from their use of hazardous substances. Require that all repairmen and contractors working on your rental property provide certificates of insurance proving they carry adequate liability coverage and workers' compensation insurance.
6. Purchase property management liability insurance if you plan on hiring a property management company. This covers you if the property management team members neglect their responsibilities and cause damage or injury.
7. Perform credit and criminal background checks on all tenants. Be aware of the background of your tenants to determine whether they are a potential danger to others. As a landlord, you can be held liable for their actions.
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