Will renters insurance pay for damage to rental unit?

Question: I am a new landlord. Does the standard renters insurance policy cover the landlord for physical damage to the rental property made by the tenant during his/her tenancy?

Property Manager Griswold replies:

The tenant's security deposit is the primary source for funds to address any needed repairs caused by tenant damage, not the renters insurance policy carried by the tenant. The problem with standard tenant insurance policies is that there is no standard renters or tenants policy. They are all different. The tenant will get the specific coverage specified and paid for. Policies begin at the low end with basic actual cash value personal property damage with large deductibles and minimum liability protection. They can range up to more complete coverage with replacement value reimbursement on personal property along with more comprehensive liability protection. If the landlord wants the renters insurance policy to cover damages to the structure caused by the tenant, then that coverage would have to be specified when the tenant purchases the policy. The tenant will need to go over the specific coverage desired on any renters policy before it is purchased. Of course, the tenant is not likely to want to pay for additional coverage that is really the responsibility of the owner. Typically, coverage, if any, for the actual physical structure, is included in rental property owner's policy. However, even your rental owner's policy is not going to cover routine tenant damage from wear and tear and normal usage. You may want to consult my book "Property Management for Dummies" for a thorough discussion of renters insurance, including how to require the tenant to provide this coverage before he/she moves in.

Landlords' attorney Smith replies:

All tenants are encouraged to obtain a renters insurance policy. However, these policies generally do not cover claims for ordinary tenant damage. Insurance coverage will, in most cases, depend on the nature and cause of the damage. Tenant negligence causing fire or other damage would usually trigger coverage. It should be remembered that, with or without insurance, tenants remain responsible for all negligently or intentionally inflicted damages to the rental property.

Question: A neighbor who recently moved out of our four-plex told me that the landlord deducted from her security deposit a monthly amount of her rent increase. She had paid the last month's rent when she moved in. I was under the impression that when you pay the last month's rent as part of the move-in costs (and the lease clearly separates the costs as "1st month's rent," "Last month's rent," and "Security deposit'), then the last month's rent was paid for even if there was a subsequent rent increase. I have lived in the complex for more than three years and I am planning on moving. I would like to know if the landlord can legally make up the rent difference for the last month's rent?

Tenants' attorney Kellman replies:

Charging last month's rent is designed to be a prepayment of the last month's rent for the tenancy. If the rent goes up during that tenancy, the landlord may change the terms of the tenancy requiring you to pay the difference of any rent increases. For a month-to-month tenancy, a special change of terms of tenancy notice must be served. For a renewed lease, the new lease could require the difference in rent to be paid as part of the renewal. In this way, the prepaid last month's rent would then be brought up to the current amount. If that was not done, then that last month is prepaid at the lower or original rental amount that was first paid. Rent may only be taken from the security deposit to cover a default in rent. In the case where a landlord has not properly raised the last month's prepaid rent, there would be no default since the last month's rent is still fully prepaid at the lower rate. Therefore, no money can be taken from the deposit to cover that rent difference. For this and other reasons, prepaying last month's rent usually works more to the benefit of the tenant than the landlord.

Landlords' attorney Smith replies:

It's a good idea to maximize the up-front money given by the tenant to secure performance of the lease or rental agreement. Characterizing a portion as last month's rent unnecessarily limits the landlord's use of the money at move-out. Take the example of the trashed apartment. By calling it last month's rent, the landlord may not use it to offset damages and cleaning. It may be used for rent and rent alone. Implementing the last month's rent presents difficulties. The plain intent of the parties should be looked at. A small claims court judge looking at this case will carefully examine the rental agreement or lease to determine how this issue was dealt with in writing. Where the issue has not been addressed in writing, my experience has been that most judges merely credit this sum against the current last month's rent and will recognize the deficit owed. Still, care in drafting the lease could eliminate this problem. Of course, the landlord will avoid this problem when calling the entire sum held "security deposit," which gives the landlord maximum use of the money held to include rent, damages and cleaning.

This column on issues confronting tenants and landlords is written by property manager Robert Griswold, author of "Property Management for Dummies" and co-author of "Real Estate Investing for Dummies," and San Diego attorneys Steven R. Kellman, director of the Tenant's Legal Center, and Ted Smith, principal in a firm representing landlords.

E-mail your questions to Rental Q&A at rgriswold.inman@retodayradio.com.

Questions should be brief and cannot be answered individually.

Copyright 2005 Inman News