Rental property Insurance – What does your insurance cover? Read the fine print!

Rental property Insurance – What does your insurance cover? Read the fine print!

Understanding and Mitigating Your Risks – Rental Property Insurance and the New Limitation Act.

Umbrella RiskThis month I’d like to share my thoughts on how you can better manage risk once you’ve made a purchase and what to consider for insurance coverage, and lastly provide an update on the Limitation Act.

For real estate investors, understanding and managing risk is an important part of selecting the right investment.  We consider each opportunity carefully, determining how the investment fits into our portfolio.  We deliberate on the economic fundamentals of the region, then investigate the unit and property to determine it’s the right fit.

Many investors however, assume that once the paperwork is approved and the title has been conveyed, the process is complete.  If you opt into a Rental Association Program (RAP), you expect to receive a monthly statement while the property is maintained by a professional property management group.

Insurance Coverage

Inurances policiesWe all know that sometimes accidents happen.  As a real estate investor, having the right insurance coverage allows you to sleep a little better at night, knowing that you have your assets covered.

Leaky dishwashers, clogged drains, overflowing bathtubs or sinks can not only damage your unit, but if it’s located on the upper flow, it can do thousands of dollars of damage to the units below. Although the strata or condo insurance would cover the damage to the suite, it can significantly impact the deductible on the strata corporation.

Also, a simple trip or fall by a tenant’s guest may lead to injury and legal action.  If someone has a fall and requires long term medical attention, do you understand the amount of your 3rd party liability coverage and the value of the coverage?

changes AheadThe insurance landscape is constantly changing, with multi-family properties facing both increasing deductibles and premiums for insurance. In some cases, if there is not adequate coverage, the board could consider approaching the investor to contribute for the deductible.

As a real estate investor, I decided to take it a step further.  I approached Property Managers and asked them a series of questions.  In the end, I had a decision tree that I thought may help you understand the process and the level of coverage. Here it is:

Insurance decision tree

If you’re unsure about your coverage, ask this key question to your Property Manager:

IF I’M IN THE R.A.P. OR RENTAL POOL, AM I RESPONSIBLE FOR THE DEDUCTIBLE OWED TO THE STRATA/CONDOMINIUM CORPORATION?

They will be able to provide the answers as to how the rental association program policies relates to the insurance questions.

lowering risk

 

So what can you do to limit your exposure?

  • Understand your coverage.  If you are in a Rental pooling type program where there is a blanket policy, then review the RAP policies to understand the amount of coverage and what would happen in a “worst case scenario”.
  • Assess your risk. Read the Master Insurance Policy to determine your deductible amount.
  • Ask questions.  Email your Property Manager so you are well informed and prepared to take the necessary action.
  • If you do find yourself financially exposed for the deductible, please consult with your insurance broker as you can simply add a rider policy to your existing insurance policy.

As you can see, understanding and managing risk for your real estate investments doesn’t end when the sale is complete.  Informed decisions are better decisions.  Take the time to understand your coverage so you can rest easy knowing that your assets are covered.

At Strategic Investment Realty, we are endeavouring to create a grid document that will provide the answer to the above key question.

Now, let’s look at the New Limitation Act for BC coming into effect June 1, 2013 …

The New Limitation Act in BC

limited amount of timeThe new Limitation Act, which comes into effect June 1, 2013, impacts the time period in which BC strata corporations must act in order to proceed with legal action.

Under the new Limitation Act, a strata corporation has two years after the day on which the claim was discovered.  The current Act offers a default limitation of six years.

Legal action from a strata corporation may include:

  • Fines and levies
  • Charge-backs
  • Interest
  • Collection of strata fees

past dueSo, for example, let’s say there is an owner who has outstanding fees and interest.  Currently, a letter of understanding is sent out to ensure funds are recovered from the owner.  After the new Limitation Act comes into effect, if fines are owed for longer than two years, they may not be recoverable.

With this in mind, council members should seek legal advice as soon as possible when:

  • facing the likelihood of initiating any legal action
  • evaluating any accounts or legal proceedings that exist prior to June 2013

Of course, if you have any concerns about a potential claim, discuss the matter with your lawyer sooner rather than later.

I have included a couple of links to review the details of the new Limitation Act link 1  and Limitation Act link 2 for BC.

If you have any question about either topic, please feel free to email me at andrew@strategicinvestmentrealty.com

By Andrew Schulhof
24 Apr 2013