The Property Management Shop

Always Advocate for Renter�s Insurance

by Marc Wilson

Q. One of my tenants let his kitchen sink overflow for over six hours. The linoleum in the kitchen and the hardwood floors in the dining room were ruined. I have bids that indicate a repair and replacement cost of $4,600. The tenant tendered a security deposit of $4,800 when he took possession of the apartment. The tenant does not deny responsibility for the damage, but he is unwilling to pay for the repairs. What should I do?

A. You have two jobs: first, repair the damage, and, second, seek reimbursement from the responsible party. Don’t waste a lot of time and emotional energy interacting with your tenant. You have a unit with ruined floors that need to be repaired and/or replaced—what does it matter who is responsible for the damage? One way or the other, you have to fix the floors, so go ahead and fix the floors. You should perform these repairs in a professional, courteous and timely manner. This means licensed tradesmen, multiple bids, permits if necessary, properly prepared and served 24-hour notices for entry, and a clean and tidy work site. Don’t take any shortcuts just because your tenant caused the damage. If anything, you should be doubly conscientious because you are working in an occupied apartment and because your tenant has already demonstrated unreasonable tendencies (i.e. his unwillingness to immediately compensate you for the damages).

Ultimately, your tenant did not destroy your floors on purpose. I personally don’t see much of a difference between the damage associated with a single, nonrecurring incident of tenant negligence and the damage associated with a run of the mill burst water line.

Try not to get emotional about the money. What are the chances that the average San Francisco tenant has an extra $4,600 lying around in his checking account? Close to none. It is best to adopt a strategy that incorporates this fact. Once you have completed the work, send the tenant copies of the invoices and proof of payment. Then ask for reimbursement. Who knows? He might just pay.

If he doesn’t pay, you have a decision to make. You could take him to small claims court. You can schlep down to 400 McAllister St., file a bunch of forms, pay some money, get a hearing date, go to the hearing, plead your case, prevail (God willing) and then get a judgment against the tenant for $4,600. The question becomes: what in the world will you do with this judgment? Maybe you could use it to line the bottom of your birdcage. I know, I know, you can attach his wages or lien one of his many pieces of real estate. But, why? Does it really pay? You need to keep your eye on the prize. Unfortunately, $4,600 is not a lot of money anymore. How much time, money and emotional energy are you prepared to spend to recoup $4,600? Remember, this is a business expense. If you expense $4,600 and you are in the 50% tax bracket, you are really only losing $2,300. I personally would never go through all of the aforementioned hassle for a measly $2,300, particularly if I was in possession of a security deposit that eclipses the amount owed by the tenant.

Be careful with your time and emotional energy. Don’t spend these resources as if they have no value. Ultimately, they are all that you have. You have already done your job. You have fixed the problem and you have billed the tenant. Don’t lament the fact that the tenant can’t or won’t reimburse you. Simply place all of the relevant correspondence and documents in the tenant’s file and deduct the charges from his security deposit when he vacates. This is the reason for and the stated purpose of security deposits. Harassing the tenant at this juncture will just encourage the tenant to not pay his last month’s rent because he knows that a big bill is coming (you won’t let him forget). If you leave everything alone, the tenant will probably forget about the outstanding obligation and fulfill the terms of his rental agreement relative to a proper notice to vacate, paying the last month’s rent, etc. You can and will make yourself whole at the drafting of the security deposit disposition.

I don’t think that the appropriate course of action is much different if the tenant has little or no security deposit. You still have to do the work. You still have to pay the contractor. You still have to bill the tenant. The only question is: what do you do if the tenant refuses to pay? I can’t believe that chasing this kind of money is the highest and best use of your time, energy and financial resources. You might be better served by encouraging your new and existing tenants to carry renter’s insurance. If your tenant was so insured, you would now be filing a simple claim to his insurance carrier instead of writing to me. Most tenants don’t carry insurance for one of two reasons: they don’t know that it exists or they believe, erroneously, that your policy will cover their personal property and/or gross negligence. They think, “It’s cool; my landlord is covered. I’m in a great building, I’m not worried about security and my stuff isn’t really worth much.” All true—until there is a disaster. I actually had a tenant with zero net worth claim $120,000 in lost personal property subsequent to a fire last year.

Renter’s insurance is easily acquired and surprisingly inexpensive. Educate your tenants. Whenever you lease an apartment, make sure that the tenant receives and signs the standard “Insurance Facts for Residents” addendum available from the San Francisco Apartment Association. This form does a good job of educating tenants about who has insurance, who doesn’t and what is covered by the building’s policy. Settling with my tenant was a lot easier because he had signed this addendum. What kind of person would have $120,000 worth of personal property without insurance? His own attorney didn’t even believe him.

The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or SF Apartment Magazine. Marc Wilson is the president of SFAA and has specialized in the brokerage of San Francisco apartment buildings for 20 years. He can be reached at 415-229-1275. Copyright © 2006 by SF Apartment Magazine. All rights reserved.