Landlords ~ Don’t Let Tenants raise your Insurance

Document of Insurance Policy, Life; Health, car, travel, for background

Sometimes Landlords overlook the issue of insurance. Make sure that your Tenant is not carrying on activities which will either increase your insurance premiums or result in a termination or denial of coverage.

You might include a provision such as this:

“The Lessee covenants and agrees with the Lessor as follows:

1)     not to engage in any act or activity, or permit, allow, suffer or acquiesce in any act or activity by occupants or others which may result in the insurer for the Lessor increasing the premium for insurance or which might cause the insurer to reduce, deny, or refuse to continue with coverage under any insurance policy,”

You certainly don’t want your tenant operating an illegal grow house (or even a legal one, for that matter), using paints, storing paints, using cleaning solvents, resins or other toxic or obnoxious substances, nor operating any kind of activity which may affect your insurance.

There are obviously some risks and you should know about them. A contract of insurance is unlike other basic contracts. Each party is not simply “on their own” and “free to negotiate”. An insurance contract is a contract based on the legal doctrine of “uberrimae fides”, or “utmost good faith”. There is a positive duty upon the insured to disclose all material information. Any information is material if it would be considering in assessing the risk or setting the premium.

The remedy available to the insurer is a denial of coverage, once the material non-disclosure issue arises. By that time, of course, there has already been some kind of accident or catastrophe. Too late to get other insurance now!

A companion clause to the effect that the Tenant will pay any increased insurance premium should also be included. And, don’t just consider the Landlord’s own insurance. Assuming a multi-unit facility, the immediately adjacent neighbour may also have an increase in insurance premiums. So, that matter should be covered too. The offending Tenant should pay for all the related insurance costs.

In many cases, a clause is not generally covered in the standard form Lease agreements, so you will have to include it yourself.

This might be a matter to bring to your lawyer’s attention. A good solicitor who practices in the real estate field in Ontario should be able to draft a suitable clause for your protection.

Brian Madigan LL.B., Broker

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