This article was last reviewed and updated on 02/09/2020.
You’ve no doubt seen mention of ‘legal liability’ in your landlord insurance policy documents – but what is it and why do you need it?
When you are taking out a landlord insurance policy, cover for things like damage and loss of rent are usually top of mind. But there’s one section of the policy that not so many consider and that’s legal liability. Noting that you’re typically covered for $10 million, $20 million or $30 million in legal liability costs may not mean very much – unless you need to make a claim.
So what exactly is liability? Well, according to the Cambridge Dictionary, it is: ‘responsibility that someone has for their actions, for example the responsibility to pay another person for harm or damage that is a result of these actions’
In a nutshell, if you are responsible for something happening, then you are liable for compensating the injured party.
What are landlords liable for?
Landlords have an obligation to provide a safe and habitable property for tenants and any person who is legally on the premises, such as guests, delivery people, tradies, property managers, utility meter readers or charity collectors.
In practical terms, this means landlords and agents must make sure that the property is as safe as possible for the tenant and they can achieve this by doing such things like:
- ensuring installations such as gas, electricity and heating are working;
- ensuring any appliances they provide are installed and maintained safely;
- treating potentially health-threatening issues such as rising damp;
- maintaining the structure and exterior of the house; plus
- any other matter that is detailed in the tenancy agreement.
In addition, each state and territory has other safety requirements that must be met including building standards and fire safety standards.
If a landlord fails in their duty of care and a tenant or visitor suffers injury or property damage, then landlords are likely to be held liable for the loss and be required to pay compensation.
A state of disrepair…
Many legal liability claims against landlords and their agents stem from a dangerous condition or state of disrepair at the premises:
- which had not been identified because the landlord or their agent failed to conduct regular inspections; or
- which they were warned of but failed to properly rectify within a reasonable time.
Case in point:
A Melbourne man received $300,000 in compensation from his landlord after he sustained serious injuries when the balustrade of a balcony collapsed at his rented property. The tenant sued the landlord and it was found that the balcony had not been properly maintained or inspected. The tenant’s lawyer alleged that “the landlord had been warned by previous tenants that the timber of the balcony was rotting, however the landlord failed to ensure that it was adequately replaced”. The judge concurred and awarded the tenant compensation as the landlord was aware of the hazard but failed to take action to rectify it.
FYI: If a landlord is made aware of a defect but they do nothing about it, their failure to mitigate loss may become an issue when it comes to making an insurance claim.
Liable, not liable?
For a landlord to be held legally liable, they must be found to have been negligent. Before a landlord can be held liable, three things must be demonstrated:
- Injury or damage occurred at the property as a result of the state of the premises.
- The landlord knew or should have known about the danger.
- No reasonable action was taken by the landlord to prevent the risk of harm.
Legal liability hinges on the fact that the landlord knew, or should have known, about a risk and failed to act on it. This means a landlord generally will not be held liable for losses/injuries that are caused by a defect, hazard or condition that they did not know about and could not have reasonably known about.
Case in point:
A West Australian tenant took her landlord to court seeking more than $220,000 in compensation after she suffered a deep laceration from the sharp edges of a damaged ceramic soap dish. The landlord argued that he was not aware that there was a problem with the soap dish. The trial judge noted that no users of the shower were aware of the deterioration of the soap dish until the tenant was injured and, as such, none of the tenants notified the landlord. In finding that a reasonable person in the landlord’s position would reasonably expect that, if any problem did arise, the tenants in the house would notice it and ask him to repair the soap dish, the judge determined that the landlord was not liable as he had no knowledge of any problem with the soap dish.
The decision highlights that the duty of a landlord is limited to taking reasonable care to avoid foreseeable risk of injury from defects, of which they are on notice.
A word about agent liability...
So what happens if the landlord wasn’t aware of a hazard, but the property manager was? If the agent fails to notify the landlord of a potential liability issue and a claim is made for injury or property damage, then the agent can be held responsible.
Case in point:
A Victorian tenant slipped at night on back stairs that were worn, slippery and unlit, with no handrail. The judge concluded that it was reasonably foreseeable that someone using the stairs might fall. The landlord was found liable. The property manager was also found liable to the tenant for failing to carry out an inspection of the premises and identify the obvious defects in the back stairs. Importantly, it was found that an agent acting reasonably would have detected the obvious defects. The judge determined both landlord (two-thirds) and agent (one-third) were liable. However, the landlord appealed the decision, claiming that he had completely delegated his duty as owner, in regard to inspections and management of the property, to the agent and should be fully indemnified by it. The judge agreed and held the agent 100 per cent liable for the tenant’s $430,000 in damages on the basis that the landlord had completely delegated his duties to the agent. The agent was also held liable for the landlord’s legal costs.
To meet their legal obligation to ensure that the property leased out by them is safe and habitable, a landlord or their agent should:
- inspect the premises at the commencement of each tenancy or lease renewal to ensure they are in a safe condition;
- arrange for regular inspections to be conducted throughout the tenancy;
- identify any repairs or maintenance which are the responsibility of the tenant and request the tenant fix these, and conduct a follow-up inspection to confirm they have been fixed;
- have urgent/emergency repairs carried out as quickly as possible and within legislated timeframes. If for any reason the repairs can’t be made immediately, take all reasonable precautions to ensure the safety of the tenants until the repairs can be made; and
- ensure any repairs and maintenance are carried out by appropriately licensed and insured people (e.g. qualified tradies).
Tenants need liability insurance too
Tenants also have an obligation to ensure the property is safe for anyone who is legally on-site. If the tenant’s action, or inaction, leads to damage or another person being injured on the premises, they can be held liable. This is known as occupier’s liability and is why all tenants should have renter’s insurance like TenantCover, which provides up to $10 million if the policyholder is found legally liable for injury or property damage.
Tenants should also advise the agent or landlord if there is a defect at the property that they feel is unsafe or could cause an injury. If the tenant fails to give notice of a hazard, and it does cause an injury, they may not be able to claim compensation.
The role of insurance
Legal liability insurance provides the policyholder with protection against claims resulting from injuries and damage to people and/or property. The policies cover both legal costs and any payouts for which the policyholder would be responsible if found legally liable.
The bad news: Given the potential costs of compensation claims and litigation, legal liability insurance can be expensive.
The good news: At EBM RentCover legal liability cover is a standard inclusion in all of our landlord insurance policies. By including legal liability as part of a comprehensive policy, landlords are afforded a high level of cover at a fraction of the cost of taking out a separate policy.
At EBM RentCover all of our policies offer cover for legal liability. For more information about cover available during the COVID-19 pandemic, contact our team at firstname.lastname@example.org.
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