HOW TO DEAL WITH A FIRE IN YOUR RENTAL HOUSE
Fires happen in homes every day. According to the National Fire Protection Agency there were 369,500 home fires in 2013 resulting in 2755 deaths and $6.8 Billion in damages. Many of these were in rental homes.
What is the first step? When you get a report of a fire in one of your rental houses, determine that the tenants are OK and the extent of the damage. Take a video or a lot of photos of the condition. Then protect the property. That may meaning getting a tarp on the roof, reinforcing walls that have burned, or any other steps to prevent additional damage from being done. Do not worry about whether you have made contact with your insurance agent yet, or not. Your insurance company will appreciate your efforts to reduce the amount of the claim by preventing additional damage. Dealing with a tenant that dies in the property is covered in another article. For this article we will confine ourselves to dealing with the fire damage and liability. If the damage is significant enough to make the house uninhabitable contact your insurance company immediately. If the damage is not that significant, you may choose to handle the issue outside of your insurance. Bear in mind that an owner or property with multiple claims may become uninsurable eventually. The general rule of thumb is a client that makes 3 claims within 3 years is likely to be canceled regardless of the size of the claims.
How do you determine the cause of the fire? If you file a claim with your insurance company, they will normally have an investigator, an expert, to determine the cause of the fire. This person will often create a scope of work outlining the damages which need attention. This list can be used with the contractor that will make the repairs. Even if you don’t place an insurance claim, you may want to hire a fire investigator (3rd party investigator) to determine the cause of the fire. With many fire departments, their investigation is limited to whether or not the criminal act of arson was committed. Once the Fire Marshall has ruled out arson, their investigation is often finished. So do not wait, or count on, the Fire Marshall’s report to determine the specific cause of the fire.
What happens to the Lease? Most leases will have a “Destruction of Premises” clause which says, in short, if the property is made uninhabitable due to fire, flood, etc., then the lease can be terminated immediately. The obligation to pay rent terminates with the lease. Whether or not the lease will continue can be negotiated between the parties. If the tenants want to move back in, and the owner is willing to let the tenants stay, and the repairs to make the house can be done within a reasonable period of time, then the parties may agree to some temporary arrangement while the needed repairs are under way. We have seen several fires over our 30+ years of experience and several thousand houses we have managed and each case has been handled a little differently based on the extent of the damage, the cause of the fire, and the attitude of the parties. However, if either party wants to terminate and move on, then that is the likely outcome. Local building codes will determine if the property is habitable and, in all likelihood, it is not legally “habitable” immediately after the fire.
Who is liable for the damage? The result of the fire investigator’s report will determine this. If the fire was started due to the tenant’s abuse or neglect, then the tenant is liable for the damages. If the tenant has renter’s insurance, then their insurance company will cover the damages. If the landlord files a claim under the landlord’s policy, then the landlord’s insurance company will usually work directly with the tenant’s insurance company. If the tenant is responsible for the fire, but does not have insurance, then the landlord can charge the tenant for the amount of the landlord’s deductible in addition to any other obligations permitted in your lease. For instance, in our lease form, if the tenant is responsible for the fire, the tenant’s obligation to pay rent continues until the lease expires or until the house is re-rented. Normally the landlord would not have the right to charge the tenant for the full amount of the claim since they are getting their insurance to cover the loss. The landlord’s insurance company may choose to pursue the tenant, but that is up to them, not the landlord.
Is there a silver lining here? If your house is damaged or destroyed by fire, this may be an opportunity to update your house. Once you and your insurance company have agreed on the amount of the claim, they are normally very reasonable regarding how you repair the property. For instance, if your 1980s rental house had a separate living, formal dining room, separate den, and a small galley style kitchen, this may be an opportunity to update the property with a modified “open concept” floor plan. Similar opportunities may exist to update the master suite if that suffered damage. We recently had a house that was burned to the ground and we built it back to the same floor plan and dimensions. However the new house was made of materials that are more durable and resistant to tenant damage which has reduced operating expenses for the property.
Let’s hope this never happens to one of your properties. But if it does, now you know how to deal with it.
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