Question

Describe how Landlord transfers risk to the tenant and what clauses you can expect to find in that form.

Answer 1

You should avoid being held responsible for a tenant's mistake (causing a fire, hurting someone or damaging property). When you rent your property to others, you may be held responsible for losses created by the tenant’s. So you transfer your risk, starting with your lease agreement. A landlord require a tenant to carry renter's insurance as part of the lease agreement. This can transfer some of the financial responsibility of the property to the tenant, should the tenant be held responsible for the damage. You should contract some types of provisions with your tenant these include:

1. Indemnity: An indemnity provision could be a primary way for a landlord to shift their risk in a contract. The responsible party agrees to compensate the other (insurance people like to use the word "indemnify"). This essentially makes sure the other party is fully compensated in the event a loss, injury and/or damage incurred.

2. Additional Insured: This provisions help landlords by allocating risk - giving the landlord another avenue of protection through the tenant's insurance policy. But, for these provisions to work, one party must list the other as an "additional insured" on their insurance policy. The insurer could then be required to indemnify and defend the additional insured as per the policy terms and conditions.

3. Waiver of Subrogation: The right to reimbursement, or subrogation, means that the tenant can seek compensation from the landlord even if the tenant was responsible for the claim, or vice versa. Subrogation claims can cause arguing between parties as to who is responsible. To prevent this, a tenant may choose to add a provision that has the tenant agree to waive rights of subrogation prior to any loss in favor of the landlord.

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