house with wraparound porch in the woods

Understanding Liabilities on Rentals

Updated March 4, 2024 . AmFam Team

If you’re a landlord, you understand the importance of making sure your rental property is safe and habitable for your tenant. By investing a small amount of time and energy into creating business entities for each of your rental properties, your big investments can be better protected.  

Financing and Purchasing Real Estate Through the LLC

It can be easy to forget that your first purchase of rental property is a business venture. It’s really important that you treat it as such from the start. One of the best ways to handle the purchase of new rental property is to seek legal advice in advance and purchase the property through the LLC.

Reducing Liabilities and Managing Your Rental Property

One fundamental way to protect your business is to prevent small issues from turning into big problems. Here are some suggestions on how to manage your rental property professionally.

Focus on maintenance. By keeping your rental property in good repair and maintaining on-site equipment on a regular schedule, you’re off to a great start.

Be on-site frequently. Maintain the property regularly and be sure to remove any hazards from common areas. Manage stray trash around the mailboxes and be sure walkways are well-maintained.

Hire a property management company. With a lawyer’s sign-off on your operational agreement, you can outsource much of maintenance. Be aware that you may still be held liable for your property management group’s missteps. To prevent that, have your real estate attorney review your agreement and make sure that they consent to be held liable for damages resulting from their negligence.

Building Liability Protection into Your Lease Agreement

You may not be able to avoid all liabilities but you can fortify your lease agreement so that it offers some liability protections. Here are a few ways to bolster the liability protection in your lease:

Define conduct, rules and regulations. By defining expected behaviors and required actions that the tenant’s take in certain circumstances, you can protect your rental business. For instance, if you provide a pool for tenant use, prohibiting alcohol consumption in that area may be advisable. If a tenant should injure themselves while drinking there, your business would be protected from being held completely liable.

Define emergency issue notification protocols. Another way to prevent financial loss is to define protocols for tenants to follow during emergencies. Requiring them to immediately evacuate the rental when the fire alarm sounds, is one example. Landlords and property managers suffer financially when tenants suffer injuries because actions are not clearly laid out in the lease agreement.

Stay professional with problem tenants. If your tenant is up late, making noise and bothering other tenants, the remedy to that problem should be included in your lease. Define consequences for common nuisance behaviors in the terms of the agreement, and you may be able to take legal actions more quickly.

Why Your LLC Needs a Commercial Umbrella Liability Policy

By supplementing your existing business insurance, you can further protect the assets of your LLC. American Family’s Commercial Liability Umbrella Coverage gives you peace of mind when you need it. It’s a package of insurance protection that’s custom-built for the needs of business owners that require additional coverage above and beyond underlying policy limits.

As you’re planning your next real estate opportunity, remember to check in with our American Family Insurance agents. They’re trained to craft coverage that protects you best — so you can focus on growing that business.

This article is for informational purposes only and is available through different sources. This information does not, and is not intended to, constitute legal advice. You should contact your attorney for legal advice specific to your situation.

Tools & Resources

Explore our tools and smart tips.