Building ownership, particularly for landlords, comes with inherent risks of loss. That’s why it’s especially important for owners of rental properties to have liability insurance as part of their risk management strategy.
Beyond insurance, this article offers other best practices for risk management to help New York City building owners protect their interests.
Strategies for managing risk
Risk management isn’t one strategy. It’s really three:
- Avoiding risk
- Controlling risk
- Transferring risk
Here’s what that means.
Risk avoidance means not participating in risky activities and being proactive about eliminating potential risks. Examples include making sure contractors take the proper safety precautions or shoveling snow from the sidewalk before anyone trips.
Risk control involves having a plan to minimize the impact of potential risks. If someone slips and falls on your property, for example, have policies and procedures in place to deal with the situation and make sure every employee is trained to follow them.
Risk transference shifts responsibility to a third party. This is what business insurance does. For example, Loss of Rents coverage transfers the risk of lost income from you to your insurer if tenants have to move out due to building damage from a covered peril.
When hiring contractors
New York Labor Law carries significant lawsuit exposure for property owners that hire contractors without the proper protection in their contracts. If hiring a third party to perform repairs or other construction work:
- Confirm that the contractor carries workers’ compensation coverage and a general liability policy with limits of at least $1 million.
- Obtain written confirmation that the contractor has named you as an additional insured on his or her general liability policy before the work begins.
- Document every interaction and communication that you or anyone on your staff has with any workers. Take notes during phone conversations.
- Use written contracts or work orders for any work or repairs on the property, including “hold harmless” and “indemnity” clauses that protect you. Otherwise, as the building owner, you may be liable for injuries sustained by anyone on your property as a result of the contractor’s actions. Consult with an attorney for the appropriate language.
- For a major project, talk to your insurance agent/broker about whether a surety bond is necessary.
- Hire only licensed, qualified, and competent contractors, and verify that they have the required licenses. Ask for, and follow up on, references.
Proper risk management when hiring contractors is particularly important for New York City building owners.
When renting to tenants
Tenants, both residential and commercial, bring their own set of risks and raise the need for special precautions:
- Require each tenant to maintain liability coverage, either through homeowners or commercial general liability insurance, so the tenant has the means to reimburse you for any damage that he or she causes.
- Working with an attorney, include an indemnity agreement in the lease that is consistent with state laws. To the extent permitted, the agreement should shift responsibility for liability claims to the tenant. In some states, these agreements are only enforceable if the agreement limits the owner’s recovery to the extent of the tenant’s valid insurance coverage. For this reason, we recommend obtaining a certificate of insurance from each tenant on a regular basis, such as annually.
- Include a “waiver of subrogation” clause in rental agreements so that, if the tenant suffers a loss, neither the tenant nor his or her insurer has a right of subrogation against you (which would transfer responsibility for the claim to you).
- Ensure nothing is forgotten by using a checklist every time an apartment turns over and a new tenant moves in.
- Require prospective tenants to complete an application that includes references and prior places of residence. Try to determine whether the tenant has moved frequently and, if so, why. As with contractors, check references.
- Obtain permission to order a credit report on all prospective tenants. (And order the report.) Poor credit history may translate to inability to pay rent on time.
- Require a security deposit.
General risk management practices
Regular inspections are one of the best, and cheapest, ways to manage risk:
- Look for slip-and-fall and trip-and-fall hazards. Many of these dangers can be easily fixed, such as repairing torn carpeting and replacing light bulbs. Look for broken or worn stairs and handrails, as well as for cracked or uneven walking and parking surfaces. Slip-and-fall is the leading cause of insurance claims.
- Arrange for snow and ice removal with qualified contractors. (See above.) Inspect for ice buildup on sidewalks and parking areas. Keep a log and record the date, time and place when clearing snow and treating surfaces.
- Make sure tenants properly dispose of boxes and other trash.
- Look for, and remedy, any sign of excessive moisture or leaking water to avoid claims—and damage—arising from exposure to mold.
We hope you find these risk management tips useful. If you have any questions about these practices or your building insurance policy ,or if you would like a free insurance review, please call us at 877-576-5200 or post a comment below.