Hurricanes and Your Rentals
Devastation from Hurricanes Harvey and Irma is still underway, and total damages won’t be known until the storms recede. Estimates so far have nudged $200 billion. These record-setting disasters have turned people out of their homes, and closed down whole cities. Rain and flooding are still affecting communities along the Gulf and Atlantic coasts, as well as towns that are hundreds of miles inland.
That’s a lot of rental property. Tension between landlords and tenants can be at its highest during crises like these, as the Houston Chronicle described just days after rain from Hurricane Harvey finally tapered off. Landlords saw their properties all but ruined, and tenants were suddenly homeless, Everyone is struggling to move forward.
The same crisis has occurred in rentals elsewhere in the nation this year. Flooding in Idaho. Huge wildfires in Montana. Chicago neighborhoods this summer endured evacuations and destruction caused by flooding. And Southern California was pummeled by storms that featured fire-causing lightning strikes that shut down power stations and closed highways, leaving yet another trail of ruin.
Since nearly 40 percent of all residential property in the U.S. is occupied by renters – and there will always be menacing weather events – many landlords could confront the scenario now playing out in Houston, the Florida Keys, Charleston, S.C., Atlanta, Ga. and elsewhere.
What can be done when your rental is damaged or destroyed in a natural disaster? What are your obligations to the tenant? Are there precautions you can take in the future?
If your residential rental is destroyed, or damaged to the extent that it is temporarily uninhabitable, the tenant will have to move out. Generally speaking, if the landlord expects to hold the tenant to the lease, and needs to make repairs before the tenant can move back in, the landlord must pay the tenant’s temporary housing costs. If damage is such that the landlord must end the lease, and the tenant must find new housing, then notice must be sent, no more rent may be collected, and the security deposit will likely need to be returned.
Keep in mind, there is a wide range of scenarios that can play out in emergencies like these. Every rental situation may be slightly different. For instance, it may be that phones and Internet are down, roads aren’t passable, and it is impossible to communicate with tenants about evacuating the rental unit. This is where common sense and compassion play critical roles. Landlords must do the best they can to contact tenants and thoroughly explain expectations. Landlords should state that the unit is unsafe, and that tenants must move out for their own safety so that the damage can be addressed. Correspondence must explain whether the lease is terminated, and how soon the tenant must remove possessions. Take that extra step to explain that, while having to move out in a short time may be stressful, a flooded unit faces serious risks even when waters recede. Mold starts growing immediately, for example. Also make it clear that the tenant’s salvageable belongings must be removed. If the tenant has insurance for possessions in the property, then they will need time to record damage so that they can file their own claim.
If a tenant refuses to move out of an unsafe rental, then the landlord must contact local authorities for help. In no case should a landlord try to physically remove a tenant, no matter how tense things get.
If the rental unit escaped damage, but other area destruction has caused a tenant to need to move – perhaps the hurricane closed down the tenant’s employer – the landlord has the option of letting the tenant terminate the lease early. This may not be required, but there is wisdom in releasing a tenant who is suddenly unemployed and wants to move out. After all, an unemployed tenant won’t be able to pay rent. Additionally, demand for housing typically soars in the days following a disaster like Hurricanes Harvey and Irma. Finding a new tenant may be the fastest and most economical course of action.
Hurricanes, floods, and fire – does insurance provide all the protection needed?
Anyone who has borrowed money to buy property knows that lenders require comprehensive insurance coverage. If the property is in a flood zone, the bank or mortgage company will also require federal flood insurance, along with the homeowner’s policy. Flood plans are supplied by both private insurers and the Federal Emergency Management Agency (FEMA). No one wants to have to file a claim, and that may be why many owners commonly skip over the fine print. But landlords can’t assume that, just because they have a policy, all damages are covered. For instance, a flood insurance policy won’t cover a finished basement, or any personal property stored there.
Those who live outside – but close to – a floodplain can also purchase flood coverage. As FEMA states in one of numerous documents it supplies on the topic: “More than 25 percent of the National Flood Insurance Program’s… flood insurance claims are for structures outside identified floodplains. Floods can occur anywhere. An area that is near a levee or a dam is at risk of levee or dam breakage. People who face even moderate flood risks should get insurance, which can be purchased for as little as $80 per year.”
Less straightforward, is the process of insuring against hurricanes or damaging winds. These plans may have high deductibles, limited coverage or, in some cases – such as when covered damage occurs in tandem with non-covered damage – no coverage at all. That’s a pretty big incentive to carefully read those policies first.
As for covering the loss of renters’ personal property, landlords can advise tenants to purchase their own renters insurance policy when the lease term begins. In fact, many states permit landlords to require tenants to purchase renters insurance. Since flood insurance policies are also available to tenants, lease terms for rentals in risky areas could add flood insurance as a rental requirement.
In some severe weather communities, there may be a state or local requirement to offer tenants special insurance coverage. Typically, this is in the vacation rental industry, but landlords should always check. In North Carolina, with its thousands of beachfront vacation rentals, the attorney general specifies that landlords must offer visitors renter insurance. This way, if storms force evacuations, the insurance reimburses the vacationer. If the rental agent failed to offer renter insurance to guests, then the owner must reimburse the guest.
A final avenue for protection for rental investments in cases of weather destruction is business income insurance. This kicks in when damage makes a unit unlivable and therefore unable to produce income. Depending on the policy, the time that it takes to repair a rental may be included in the claim period.
Preparation every landlord should consider
Insurance coverage is a major part of the preparation process, but rental owners can do more to be hazard-ready. Coastal and other rental markets that are susceptible to severe damage require stringent catastrophe planning. The easiest measures are those that make certain areas of the premises off-limits to tenants. For instance, since flood insurance won’t cover a finished basement, owners shouldn’t finish walls or floors or ceilings, let alone permit tenants to use the basement as living space. In fact, many owners move furnaces, water heaters, and circuit breakers into first-floor closets, even though those items typically are covered in claims.
The South Florida Regional Planning Council put out a great guide on the heels of destruction caused by Hurricane Andrew, in 2000. Many tips it listed can be applied in areas prone to flooding, wildfires and other disasters, as well.
And preparation chores must be shared with tenants. After all, your rental unit is their home. Regardless of location, every residential lease should require tenants to report needed repairs to landlords. These include missing roof shingles, clogged drains and downspouts, leaks, and blocked doors and windows.
The lease can also lay out clear expectations for routine maintenance of the rental that will reduce the likelihood of damage in the event of a hurricane or other disaster. For instance, tenants could be required to establish an evacuation plan they share it with the landlord, as well as maintain an emergency kit. The lease could state that if an extreme weather event is forecast, tenants must:
- Close all open doors and windows
- Move outdoor furniture inside
- Keep pets inside
- Shut off circuit breakers
- Turn on emergency generators
Again, FEMA supplies excellent help with designing plans and preparing for the worst. A tenant who has been well tutored in the principles of disaster planning can be a great assist to owners.