$20 million… $30 million… No it isn’t the lotto jackpot. It’s the amount of ‘legal liability’ cover likely to be included in a landlord insurance policy. The sums represent lots of zeros, but just what is liability cover and why do landlords need cover with seven-figures?
Landlord insurance policies cover a lot of risks faced by landlords, from damage and loss resulting from ‘perils’ like bad weather and theft, through to loss of rent. But there’s one inclusion that most don’t really think about – until they have to. And that’s legal liability (it may be referred to as ‘public liability’ or ‘liability to others’).
So what exactly is liability?
According to Black’s Law Dictionary, liable means ‘responsible or answerable in law; legally obligated’. The Cambridge Dictionary says it’s the ‘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’. Or. to put it in the vernacular of one of those TV courtroom shows: ‘It’s your responsibility. And you have to pay for it’.
Basically, if a person is responsible for something happening, then they are liable for compensating the injured party.
What does it mean for landlords?
Landlords have an obligation or duty of care 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 other visitors like charity collectors. (Note: Trespassers, including burglars, are people who do not have permission or a lawful right to be on a property. Owners and occupiers of a property generally have no duty to protect trespassers from dangers.)
If a tenant or a visitor is injured or has their property damaged while they are on the premises, and the reason for that loss can be attributed to the landlord (i.e. is the result of something that the landlord reasonably shouldn’t or should have done), then the landlord is likely to be responsible for compensating them for that loss.
Heads up: 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 not covered by the landlord’s insurance. Tenants need their own renter’s insurance with legal liability cover.
Why seven-figure cover?
Cover in the tens of millions might seem like a bit of overkill, but there’s a reason why the limit is so high. And that’s because legal liability claims can easily stretch from tens of thousands to hundreds of thousands or even millions of dollars. Just think about… There could be the cost of medical treatment, rehabilitation, loss of earnings, pain and suffering, and legal fees – these can very quickly add up. In the event of a life-altering injury or death, there is also the potential for lifetime medical costs and care, or a lump sum payout.
What are landlords liable for?
Landlords must take reasonable care to avoid foreseeable risk of property damage or harm to their tenant and other visitors to the property. Landlords must guarantee the safety of their rental properties by such measures as:
- 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.
Heads up: 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.
In practical terms?
Common situations resulting in landlord liability include:
- the premises being in disrepair;
- inadequate security measures;
- building standards not being met; or
- fire safety standards not being met.
A landlord may be found liable for property loss or injury in a rental property if the injuries/losses result 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
- they were warned of, but failed to properly rectify within a reasonable time.
Heads up: Tenants should 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 them an injury or loss, they may not be able to claim compensation, or they may also be held liable if a third party suffers the loss.
What makes a landlord legally liable?
For a landlord to be held legally liable, they must be found to have been negligent in their duty of care. Negligence occurs where someone fails to take reasonable care to avoid a foreseeable risk of injury.
The primary duty of the landlord is normally limited to remedying:
- defects that existed at the time the tenancy commenced or was renewed; and
- defects of which the landlord knew, or ought to have known, that arose during the term of the tenancy.
With this in mind, before the landlord can be held liable, three things must be demonstrated:
- The property is in some way defective according to the Building Code of Australia.
- The landlord knew or should have known about the defect.
- 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. So 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.
Heads up: So what happens if the landlord wasn’t aware of a hazard, but their 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 may be held responsible.
To meet their legal obligation to ensure that the property leased out by them is safe and habitable, a landlord or their agent should:
- undertake an inspection at the commencement of each tenancy or lease renewal to ensure that the premises are in a safe condition;
- arrange for regular inspections to be conducted throughout the tenancy;
- ensure that the property meets all relevant building codes, safety standards and health regulations;
- provide and maintain adequate security measures, such as secure locks, lighting in common areas and security systems (if necessary);
- address known environmental hazards, such as lead-based paint, asbestos, and mould, in accordance with legal requirements. Provide proper disclosures to tenants when such hazards exist.
- identify any repair or maintenance obligations 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);
- promptly arrange for general repairs and maintenance when requested by the tenant; and
- ensure any repairs and maintenance are carried out by appropriately licensed and insured people (e.g. qualified tradies).
Legal liability cover
Legal liability insurance provides the policyholder with protection against claims resulting from personal injury and or damage to property.
The policies cover both legal costs and any payouts for which the policyholder would be responsible if found legally liable.
While legal liability claims aren’t in the same league in terms of the number of claims, compared with claims for loss of rent or damage, incidents and claims occur more often than you may think – and they usually result in much higher payouts.
Given the potential costs of compensation claims, legal liability insurance is a must for landlords. But the insurance can be expensive.
Landlords with EBM RentCover policies need not worry about securing separate cover – legal liability is automatically included in all of our landlord policies, with cover ranging from $20 million for ShortTerm policies to $30 million for Ultra, Platinum and Householders Rental policies.
To find out more, give the EBM RentCover team a call at 1800 661 662.
*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are here, contact 1800 661 662 if you have any questions.