The landlord-tenant relationship is not always as straightforward as it may seem. This is especially true when a property owner may need to compensate a tenant, as opposed to the more usual rent payments from tenant to landlord. While it is true that there are reasons why a property owner may need to pay a tenant, the compensation that may be owed to tenants may not actually be the property owner’s responsibility.

In certain situations, a property owner may be required to compensate a tenant. Such situations are generally rare but can and do occur. For example, if a landlord is unable to make essential repairs to a property but authorizes the tenant to do so, the tenant may need to be reimbursed the cost of those repairs. Another example would be offering a tenant cash to leave a property. Eviction proceedings can be a long process. At times, it may save money to simply offer a wayward tenant money if they agree to move out quickly. This “cash for keys” method may help to quickly replace a tenant not paying rent and possibly avoid expensive legal fees.

However, there are situations when a property owner may think that they must compensate their tenants, but they don’t have to. For example, if your rental property is severely damaged by a fire or natural disaster, chances are that some of the tenant’s personal property will be damaged, too. Also, the tenant may need to temporarily relocate while repairs are being made. The property owner (and their tenant) may think that it is the property owner’s responsibility to replace the lost property as well as cover the cost of a hotel stay if the property is uninhabitable.

But that is not the case. Rental property owners are almost never responsible to pay to replace a tenant’s lost or damaged personal items in these such situations. Additionally, when a rental property is damaged and officially rendered uninhabitable due to events out of a property owner’s control, the tenant should look to their renter’s insurance to cover the cost of their hotel. A renter’s insurance policy also covers a tenant’s personal items, and, depending on the specific circumstances of an event, the insurance company may compensate the tenant for any losses. Therefore, it is so important to require your tenants to obtain and maintain a renter’s insurance policy.

Property owners who have compensated tenants in the past should consider taking the time to review their approach and practices. If you find that you are making it a habit to compensate tenants when you shouldn’t be, changing your approach could improve your bottom line. For more information, contact your local independently owned and operated Real Property Management office.

*This content is for informational purposes. Real Property Management is not a financial advisor. In order to make the best financial decision that suits your own needs, you must conduct your own research and seek the advice of a locally licensed financial advisor as necessary.

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  • Jeff Pepperney

    Jeff Pepperney is president of Real Property Management, the largest single-family property management organization in North America. He is a Certified Franchise Executive through the International Franchise Association with more than 20 years in executive leadership roles in franchise and consumer services.

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