The Property Owner

Anyone who owns rental property is an excellent candidate for a lawsuit. In any measurement of potential liability, we would rank the property owner at the top of the list.

Let’s assume you own a small apartment building. One evening a female tenant returns home from work and parks her car in the enclosed parking garage. As she gets out of her car, she is robbed by an assailant. Under these circumstances, you can expect a lawsuit against you as the owner of the property, for negligently failing to provide the proper level of security.

Regardless of the actual safety measures which you employ, the plaintiff’s attorney will allege that you should have taken additional steps, such as installing video cameras, floodlights, or hiring security guards to protect the safety of the tenants. In essence, as a property owner and a Deep Pocket Defendant, you become a guarantor of the safety of your tenants, to the full extent of your available net worth.

• A tenant was shot and killed in the alley behind the apartment building. It was found that the owner of the property should have provided better lighting for security in the alley. The jury awarded $27 million to the relatives of the tenant.
• A fire in an apartment building killed one tenant and injured nine others. The owner had complied with all building code and safety requirements. He was sued for $5 million.

In these and similar cases, the owner of the property paid the claim or the judgment even though he had done nothing wrong. And that’s where the problem lies. Under our current legal system, it doesn’t matter whether you are really negligent or whether you do anything that is wrong. You can maintain your property in perfect physical condition, taking every imaginable safety precaution, and yet something can still go wrong. If a tenant is injured on the property—no matter the cause—it will still be your fault.

Having insurance on the property does not provide a guarantee that you will be free from personal exposure. Insurance is written with a long list of exclusions and exceptions and generally won’t cover a lawsuit for undisclosed defects. Furthermore, it will be difficult to obtain an amount of insurance which is adequate to cover the full amount of the potential liability associated with injuries to multiple tenants. Even $1 million in coverage will not be sufficient if someone is seriously injured on your property. If several people are hurt in a fire or earthquake or other disaster, there may be $5 million–$25 million or more in potential damages.

Whatever amount is not covered by insurance will be your personal obligation. A judgment against you will be satisfied from your personal assets including your home, savings, and retirement funds. If something goes wrong at the property, everything you own can be lost. Any real estate—whether or not you have any equity in the property—represents an enormous source of liability to you and poses a danger to all other assets that you have accumulated.