Renting Single family home to run Assisted Living Facility

[CapautoG]

I have rented my single family home for the last 4 years to a tenant who runs a residential assisted living facility from that home. They run the facility for a limited number of clients. 5 bedrooms so they can have only 5 people being cared for.

Things have been great in the last 4 years so far with rent on time, minimal requests from the tenant, house being kept in top condition all the time etc. These facilities are run under state supervision with frequent visits from health department, some sort of a nurse, helpers always available etc.

My rental agreement is between me and the tenant who owns this business. Looking for suggestions to minimize my risk incase someone sue the facility and in turn comes after the house owner/me. At this point, other than the typical home insurance, I have taken a umbrella insurance for $2M on this property.

Looking forward to your comments and suggestions. Thanks.

[ResearchMed]

Welcome to Bogleheads!

For starters, I'd have a requirement about the amount of insurance that the tenant/ALF-operator has, including a nice, hefty umbrella policy.

I assume (I could obviously be wrong) that this wouldn't run afoul of any landlord-tenant regulations, because this is a business rental, not simply a residential rental, like to a family or a few roommates.

I'd double and triple check with my own insurance company, the ones who have issued my own *business/commercial* insurance and umbrella policies, and probably would go higher than $2m.

And I'd double and triple check with an attorney experienced with this type of business enterprise.

If you don't have a mortgage in your own name, then I'd suggest creating an LLC, and having that entity own the house, and make sure that proper separation between you personally and the LLC is strictly enforced.

Are you able to confirm that all the ALF regulations are indeed being met by the operator?

RM

[Lexx]

I'd double check that umbrella. Many personal umbrellas don't cover exposure in a commercial situation.

[momvesting]

Just FYI, we had something similar pop up in our neighborhood, except it was residential drug treatment. That comes with issues that you probably do not experience (not what you think though, for example parking was the #1 problem). Turns out that the solution to kick the residential facilities out was not the state but the fire marshal. The homes were lacking things like fire suppression systems and hallway widths that were required for these types of facilities (but not for homes). The requirements might be different in your area, or maybe the fire marshal just has never had this home on his radar.

[Sandtrap]

This is a potential huge liability, or maybe not.
There's a long list that might or might not apply to your property. IE: ADA requirements, Health, Fire, etc.

Definitely Seek legal counsel.
j

[Katietsu]

Are you saying that you own this personally? No LLC or similar? A $2 million personal umbrella insurance policy? Or is it a commercial policy? Do you require the tenant to provide you with proof of their own liability policy?

As Sandtrap advised, you should have legal consult with someone who is experienced in this area.

[carolinaman]

I'd double check that umbrella. Many personal umbrellas don't cover exposure in a commercial situation.

+1. I agree. OP needs to talk with insurance company to get the proper type of insurance and also get proof of adequate coverage by renter. I would consult with an attorney to be sure I am adequate insured and protected.

[ChrisC]

At minimum, include language in the Landlord-Tenant lease providing for full indemnification (and defense) for any claims arising from the Tenant's operation of the ALF that may be pursued by any third party against the Landlord and require that Tenant have a broad commercial liability policy in which the Landlord is named as an additional insured under the policy. I'd also increase the rent to pay for the cost of additional insurance the Landlord might procure to mitigate the risk of something going awry on the premises.

[JoeRetire]

Looking for suggestions to minimize my risk incase someone sue the facility and in turn comes after the house owner/me.

You need to have a chat with your lawyer. It should have been done before renting. You may have just been lucky so far.

[CapautoG]

Thanks everyone. My rental agreement is with this individual not with his Business which is running the ALF. Does that change anything regarding the umbrella insurance or my overall risk incase something goes wrong there?

I agree that it is better to consult a lawyer

[ResearchMed]

Thanks everyone. My rental agreement is with this individual not with his Business which is running the ALF. Does that change anything regarding the umbrella insurance or my overall risk incase something goes wrong there?

I agree that it is better to consult a lawyer

Absolutely consult an attorney.

But also ask your insurer very specifically about this arrangement... do NOT mince words at all.
You want them to fully understand now, when they are helping to make sure you have the *right* type and amount of insurance coverage, just what the situation is.
That is, you do *not* want to make a claim, should that ever come to pass, and only then find out that "if they had known x, y, or z, they would have arranged your coverage differently"... and thus you are not insured enough or at all.

Try to do all of this sooner rather than later...

RM

[123]

...My rental agreement is with this individual not with his Business which is running the ALF. Does that change anything regarding the umbrella insurance or my overall risk incase something goes wrong there?...

Since you know what's going on with the property (as do most landlords) you're likely on the hook. Do you know if the business is run by the tenant as an individual, a corporation, or an LLC, and does he also have other sites? Does he have a local business license? In what name is the ALF run (check state ALF licensing)? Is your property specifically licensed? Is an ALF in compliance with the local zoning?

Since the property is yours it would seem like you have more to lose than your tenant should something go awry.

Note that people who work in personal care situations (nurses, daycare workers, care attendants) are in occupations that have a very high level of workers compensation/personal injury claims due to back strains etc.

[CapautoG]

Following are the major discussion points I can think of with the lawyer

Rental Agreement - 1)Is it Ok to have the agreement with an individual knowing that he is running a business or should the agreement be with his company running the ALF 2) Modify the agreement to include details around indemnification (and defense) for any claims arising from the Tenant's operation of the ALF that may be pursued by any third party against the Landlord and require that Tenant have a broad commercial liability policy in which the Landlord is named as an additional insured under the policy. (Thanks ChrisC)

Umbrella Insurance - What type of Insurance is needed. What is the recommended limits

LLC - Discuss the possibility of creating an LLC and having the rental agreement with that LLC

Anything else? Thanks

[ResearchMed]

Following are the major discussion points I can think of with the lawyer

Rental Agreement - 1)Is it Ok to have the agreement with an individual knowing that he is running a business or should the agreement be with his company running the ALF 2) Modify the agreement to include details around indemnification (and defense) for any claims arising from the Tenant's operation of the ALF that may be pursued by any third party against the Landlord and require that Tenant have a broad commercial liability policy in which the Landlord is named as an additional insured under the policy. (Thanks ChrisC)

Umbrella Insurance - What type of Insurance is needed. What is the recommended limits

LLC - Discuss the possibility of creating an LLC and having the rental agreement with that LLC

Anything else? Thanks

Please allow the "experts" (meaning an appropriate attorney and insurance agent/broker) to advise you, and don't plan to know all the questions to ask first.

For example, you haven't mentioned the regular insurance (only umbrella), which almost definitely should be a business/commercial type of policy, and not a regular "homeowners". This is related to but separate from the umbrella coverage. But that may differ with insurer or jurisdiction, so again, let them tell you how to handle it.

Have you mentioned yet (sorry if I missed it) whether there is a mortgage on your house and if so, if your personal name is on that note? I suspect it wouldn't be an LLC, because you don't have one yet, but if there's no mortgage, then this is a non-issue.

Why not ask them, and asap.
You may have considerable liability exposure if this isn't all arranged properly.
Sure, "something really bad" is unlikely to happen soon or at all... but things do happen, which is why we get insurance...

Also, just because someone agrees to "indemnify you" doesn't mean that someone else can't sue them and you, too (or you only). Then you need to defend, regardless of the merits. In a major claim, you want a team of attorneys handling that for you, etc.

I'd strongly recommend you have your own policy as well, with *full* suitable coverage.
You don't want to find out after a major event/claim that the last payment for the tenant's insurance didn't happen on time, or something like that. Or there was some other problem with that policy.

Then after those meetings, if you aren't sure, by all means report back here what is recommended to see if there are any other thoughts/suggestions. Then there would be more details.

But... time is of the essence (or could be).

RM

[HomeStretch]

Is there a reason you rented to the ALF tenant? Is the rent you receive from this ALF tenant at a high premium to the rent you would receive from a lower-risk tenant who made it their personal home?

[gwe67]

Just FYI, we had something similar pop up in our neighborhood, except it was residential drug treatment. That comes with issues that you probably do not experience (not what you think though, for example parking was the #1 problem). Turns out that the solution to kick the residential facilities out was not the state but the fire marshal. The homes were lacking things like fire suppression systems and hallway widths that were required for these types of facilities (but not for homes). The requirements might be different in your area, or maybe the fire marshal just has never had this home on his radar.

Yes, it really sucks having these things in the neighborhood. Parking is indeed the top (but not only) problem. OP, please do the neighborhood a favor and sell the property or rent to a family.

[JoeRetire]

My rental agreement is with this individual not with his Business which is running the ALF. Does that change anything regarding the umbrella insurance or my overall risk incase something goes wrong there?

Only your insurance carrier knows for sure. If you really want to know (and you should) you need to ask them.

[CapautoG]

Is there a reason you rented to the ALF tenant? Is the rent you receive from this ALF tenant at a high premium to the rent you would receive from a lower-risk tenant who made it their personal home?

One of the main reasons I thought of giving it to thsi ALF was the continuity in rent it will bring. Rent was more ore less as per current market.
Biggest advantage I have seen was the lack of interactions or requests from the tenant. They may have called me twice in the last 4 years.

[CapautoG]

[/quote]

Yes, it really sucks having these things in the neighborhood. Parking is indeed the top (but not only) problem. OP, please do the neighborhood a favor and sell the property or rent to a family.
[/quote]
House is in a very good nightbourhood. No complaints or noise from the neighbors regarding traffic and parking. HOA is pretty strict around there

[CapautoG]

Talking about lawyers....Do you think going with legalzoom a good option here?

[ResearchMed]

Talking about lawyers....Do you think going with legalzoom a good option here?

Nope.

Your situation appears to be more complicatred than you may realize.

It's starting to seem a bit like you are just trying to elicit some other answers that appeal to you more?
Many of us have already given you some good suggestions.

Do you really want to try to do this for a minimal amount of money and risk finding out, IF there is some liability problem in the future, that... you aren't protected, and have a really serious and expensive situation?

It seems that your renting to the ALF is a good thing for you and for them (and all the better if neighbors don't mind, although as long as zoning and HOA allow, that's not primary).
But please... make sure thay you are *properly* protected.
Anonymous internet strangers aren't good for specific legal/insurance information, no matter how well intentioned we may each be. There's no way we can know *all* of the relevant background, for starters.

RM

[Lexx]

Yeah, if I were the OP, I'd make a call to arrange a meeting with a GOOD attorney who knows this stuff IMMEDIATELY. Do NOT skimp on the legal advice. The liability could be ruinous. He's playing with fire here.

[Watty]

One other thing to talk to your lawyer about.

You may be doing fine with the people who are running the business have everything working well but then they could sell it. The new owner may not work out nearly as well and you could be caught in the middle of a mess.

[CapautoG]

Thank you all. Didn't realize this could get complex hence the legal zoom question.

Any attorney recommendations for Avondale AZ? (near Phoenix)

[CapautoG]

Quick update that, I got a good reference for an attorney. Talked to him and he sounded like someone who has experience in dealing with most of the stuff we discussed here. Thanks again. Will keep you all posted

[MA405]

I suggest to discuss the type and amounts of necessary insurance with the lawyer, NOT with your current insurer. Otherwise you are running a risk they would drop you like a hot potato.

I made that mistake once. For whatever reason, I can’t recall 25 years later, I told my homeowner insurance carrier about my wife’s home based music teacher business. Kids come to play piano and to sing. What could go wrong? They told me same day they were canceling my policy and to find another insurer.

[ResearchMed]

I suggest to discuss the type and amounts of necessary insurance with the lawyer, NOT with your current insurer. Otherwise you are running a risk they would drop you like a hot potato.

I made that mistake once. For whatever reason, I can’t recall 25 years later, I told my homeowner insurance carrier about my wife’s home based music teacher business. Kids come to play piano and to sing. What could go wrong? They told me same day they were canceling my policy and to find another insurer.

OTOH, if it turns out that you somehow violated the terms of your current insurance, such as "no business activities", then at least they would have told you and you could have gotten proper insurance, from them or another insurer.

Again, ask your attorney.
But make sure you don't end up at risk of finding out, *after* you file a claim, that you weren't covered after all...

Ask that attorney... "is there anything else I should be asking or finding out?"
Have you mentioned here whether your house is in an area that is zoned for commercial use?
Where we live - and this may be very different where you live, of course - if one violates the zoning regulations, then the insurance is automatically not going to pay any claim on the homeowner's policy, no matter what type of claim.

RM

[rooms222]

An attorney is very necessary. On a state by state basis, there is often a body of both court cases and law that allows group living facilities to supersede both zoning and homeowners associations. Having a lawyer that knows how this applies specifically in your state is critical to comply with those rules and to help make sure you have the right insurance. In my state, the state department of health and human services both planned and fought in court for the right to have these homes placed in any community in the state. Your state may be different.

In my state these homes are often leased for 20 years. At the end of the twenty years, because of both modifications and wear, the homes are a shell of their former self, and not really ready to sell, except at a very discounted price. Calculate this into your financial analysis. Overall, in my area, these leases have been attractive overall.