Many homeowners in the greater Cleveland area are contemplating vacating and renting out their homes during the Republican National Convention (“RNC”) in Cleveland in the summer of 2016. With some rental listings as high as $40,000 featured on websites such as Cleveland Scene and RE/Max, homeowners hope to gain a large profit. This potential for a high rental income promises a big reward, but homeowners are best advised to consider whether their interests are adequately insured before handing over their keys.
Homeowners may assume that their current homeowners’ insurance policy will cover any risk related to their property while tenants occupy their homes during the RNC; unfortunately, this may not be the case under the terms of some policies. Most homeowners’ insurance policies are designed to cover single-family residences that are owner-occupied. This means that when a homeowner rents his or her single-family residence to a tenant, any damage to the property or injury to persons on the property during that tenant’s rental period may fall outside the policy’s protection. This owner-occupied requirement varies in different homeowners’ insurance policies. For example, some policies provide coverage for occasional short-term rentals. Homeowners with this provision should review the definition of an “occasional” rental in their policy. They should contact their insurance carrier to notify them of the rental and to obtain a clear definition of allowed “occasional” rental to ensure that renting their home during the RNC is covered. If an insurer provides a definition or permission over the phone, it is imperative to get that language in writing to prevent any future confusion. Keep in mind that this homeowners’ insurance coverage will not extend to tenants' personal property if it is stolen or damaged.
One option available to homeowners whose policies do not cover short-term rentals is to contact their insurance carrier and ask for a rider or endorsement to cover the tenant’s short-term stay. Some policies call this “unit rented to others” coverage. This would serve as an addition or supplement to the existing homeowners’ insurance policy to cover the short-term tenancy. Insurers will likely require homeowners to list specific tenants and a specific rental period in the rider or endorsement. If available, this option is likely the easiest and least costly means of obtaining short-term rental protection.
In the event that homeowners cannot obtain coverage through their homeowners’ insurance policy, homeowners are not necessarily out of luck. Many insurers offer landlord insurance policies, often called “landlord property insurance.” These policies are offered with varying levels of coverage, ranging from coverage of only the home and other structures on the property such as garages and sheds to additional coverage for personal property, fair rental income, and liability. The amount of coverage needed depends on the risks presented.
Personal property coverage is advisable in cases where a homeowner plans to rent the home furnished or leave personal property in the home, which is likely the case during the RNC. This should cover items such as furniture, appliances, and tools owned by the homeowner. However, landlord insurance with personal property coverage does not cover any damage or loss to the tenant’s personal property. Tenants can insure losses to their personal property by purchasing renters’ insurance.
Fair rental income coverage protects against lost rental income in the event that the property is damaged or uninhabitable due to a covered loss. Covered losses usually include natural perils such as damage from a fire, but homeowners can purchase coverage for other events or natural disasters as well. Homeowners may decide that this coverage is not necessary if it comes at an additional cost and they are not renting their home at a high rate or do not consider the rental income vital.
Liability insurance typically provides homeowners liability protection in the case of a claim or lawsuit related to an injury that occurred on the property. This type of coverage often provides for coverage of expenses and/or legal and defense costs if a person is injured on the premises and brings a claim against the homeowner. Because medical bills, legal fees, and settlement costs can be expensive, homeowners are strongly advised to purchase landlord insurance that includes liability protection. Landlord insurance policies will vary, and homeowners should discuss which policy best suits their needs with their insurance agent.
In short, homeowners have the opportunity to make a substantial profit during the RNC by renting out their homes. To ensure that renting their homes remains profitable in the event that something goes wrong, homeowners should make sure that their interests are adequately covered. For more information about legal considerations for real estate rental during the RNC, see RNC-related contracts pose special legal challenges.