Rental property can be a cause for a potential lawsuit in a variety of manners. In addition to protecting the property from a lawsuit, you will need to take steps in order to protect yourself from any resulting liability. Keep in mind that on top of taking steps to protect yourself and your property, there are also many state and federal laws that may apply to you as a landlord.
If you are renting property as a sole proprietor, you could face personal liability for any lawsuits that arise from the use of that property. In order to insulate yourself from personal liability, you should form a corporation or an LLC -- limited liability corporation -- to act as a holding company for your property and protect your personal assets and your home if litigation ever occurs. In addition to LLC protection, you should obtain an insurance policy that provides you with liability coverage. If you are sued and you have a comprehensive insurance policy, the insurance company may assume your defense in court.
One way to protect your property from legal action is to have a clear rental agreement explaining the terms and conditions of property rental and how the tenant is to act when they are on your property. By prohibiting certain conduct in the rental agreement, you can insulate yourself and the property from lawsuits should your tenants hurt themselves while engaging in such conduct. In addition to providing a comprehensive rental agreement, you should consider having the tenant agree to an arbitration clause. Arbitration clauses require that the parties go to arbitration rather than court should any dispute arise.
One of the main ways that landlords are drawn into court is through premises liability. The doctrine of premises liability holds that a controller of land can be liable for certain injuries or damages when that person had the ability to warn or otherwise prevent the injury. In order to avoid premises liability, you should make sure that your rental property is in compliance with all building and fire codes. You should perform routine inspections to make sure that property conditions are safe. If there are known hazards, you should post signs and make sure that renters and guests are aware of the hazards while you take steps to repair the property.
Landlords are also drawn into court for failure to comply with state security deposit laws. Many states only allow a certain amount to be charged for a security deposit and require that the landlord attempt to notify the tenant why a security deposit is being held. Before renting your property, you should meet with a landlord-tenant lawyer in your state to make sure that your lease and rental procedures are in accordance with state law.
- NOLO Legal: 10 Steps Toward Low-Risk Landlording
- Seniorjournal: Protecting Your Equity from Lawsuits Requires Understanding the Choices
- The Wall Street Journal: How to Form an LLC
- Occidental College: Sample Rental Agreement
- Massachusetts Housing Consumer Education Centers: Sample Rental Agreement
- United States Arbitration and Mediation: Arbitration Clause
- Hemera Technologies/AbleStock.com/Getty Images
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