How to compensate tenants for no electricity in the building?

Question

We plan to update the electrical in our 3-flat building. We live in 1 unit and rent out the other 2. The electrical system here is old, so this is for safety and for better utilities separation.   Our electrician says we won't have electricity in the building for 4 days - until the village inspector gives his OK to get the electricity back.  How should we compensate the tenants for these days?

Anthony Lee · Answer

@Yulia Jenner Account Closed, just to chime in here there are a few things which need to be addressed.

1. Insurance provides coverage only when there is a covered loss. The causes of loss, otherwise known as perils, are named on most policies. Most policies name the specific perils. In this situation, If the cause of loss is not due to one of the named perils,  coverage will not be provided.

2. Loss of use coverage only comes in to effect when there is a covered loss and the home is uninhabitable during the reconstruction. (I.e. The house burns down, and the loss is covered, and the insured has loss of use coverage, the policy would provide coverage for reasonable alternative accommodations for the duration of reconstruction or up to the coverage limit)

3. In Yulia's situation, as she described, there is no loss. She is planning to update the electrical in the house. It is scheduled. It can be done at another time. There is no loss associated with this because it is willful.  It is maintenance being done. It is not a loss. And therefor would not be covered by either the landlords insurance or the renters if they did have it.

4. Insurance is a contract of indemnity. It is is meant to restore the insured to the condition prior to a loss. It is not something to profit by.

Jack Edgar jr · Answer

Along the lines of what @Mike McCarthy said, why not offer a generator to the building and run temp power to the necessities.

On that note, I don't know the scope of discussions with your tenants but doing a project of this magnitude I would seek input from the tenants to best assess a good plan. Just my 2 cents.

Account Closed · Answer

Legally, you're only required to reimburse them rent for those days.  You aren't liable to put them up in a hotel.  That's what renter's insurance is for.

What you could do, is ask them if they'd rather have a rent reduction next month, or for you to give them 4 days worth of rent in cash.  And they're free to stay in the unit as long as they sign something that says they are agreeing to accept the rent money as compensation for not having electricity for four days and that they are welcome to stay in the unit anyway, if they so choose.

Then, when it's time to write up a new rental agreement, I highly suggest requiring renter's insurance that includes a "loss of use" rider.  In my experience, this is the kind of situation most likely to happen, where they should have had insurance.  And you usually have to ask for the loss of use rider separately.  It's still really cheap.  I have several riders on my renter's insurance policy, and my monthly payment is still only $25.  And if I get displaced, I have $4,000 I can use for a mini-vacation at a nice local hotel :-)

At any rate, that's how I'd approach it.  They'll probably put up with no electricity and keep the money.  The one time we offered to pay for a hotel room overnight for a tenant, she took the money and went and stayed with a friend anyway LOL.  Plus, we gave her a rent credit for one day.  Learned not to do that again.

And if you make renter's insurance an option, and explain clearly that if something like this happens, you're not liable to pay for hotels or replace their things, etc., they'll still freak out if this stuff happens, because they rarely get insurance.  So, if it was me, I'd require renter's insurance, including a loss of use rider, so when they start freaking out I can say - remember that insurance you are required to have?  This is what that's for.  And hopefully, they didn't let it lapse LOL.

Aaron Mazzrillo · Answer

Each tenant gets a free flashlight... But they must return it when the lights come back on. Maybe you could do it right and offer them the cool headlamps that campers use. Tell them it is "urban camping!"

Yulia J. · Answer

Account Closed Thanks a lot, Sue. This makes a lot of sense to me! I've just finished typing up letters to renters. I was a renter myself not so long ago, and I did let my renter's insurance lapse after the 1st year:) the landlord didn't require it though.

Account Closed · Answer

Oh gosh, good point.  I was just thinking of the place being uninhabitable.

When we had to displace tenants, it was because of things like a flooded bathroom that overflowed into the living room.  And another time when the ceiling mysteriously fell down on a supposedly sleeping tenant (I'm quite sure she was pounding on her ceiling with a broom LOL).  Anyway, they were accidents and not planned maintenance.

Thanks for setting that straight :-)

Account Closed · Answer

LOL, I've come full circle.  Started out renting, bought and sold properties, then managed someone else's, and now I'm renting again.

I've seen other posters here on BP mention a way to get notified if the tenant lets the insurance lapse.  The owner I worked for didn't require insurance, so I'm not sure how that works, but it sounded like a good idea.

Yulia J. · Answer

@Yvette May  I don't even know if they have renter's insurance, probably not. We inherited them from the previous landlord and just learning the whole landlording thing. There will be no electricity, meaning no lights, no hot water in the shower, no fridge, I am reading up on that and it's considered uninhabitable.

@Michael Henry Thank you, we are thinking along the same lines, prorate their rent.

Account Closed Yes, a motel is an option, thank you. Prorating rent is fine but paying for motels might be getting expensive...Thank you for your input.

I will talk to both renters and we will see. We will give them plenty of warning so they can prepare and not load up their fridges. I am wondering what the law says. I want my renters be happy and feel taken care of and on the other hand, be protected myself and keep the business healthy.

How to compensate tenants for no electricity in the building?

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