The Insurance Gap: Why Vacant Rentals Need Different Coverage

The Reality Check on Insurance

What are your thoughts on insurance? Most of us think it’s expensive, we pay so much into it, and then when something finally happens and we need it, it doesn’t actually cover what we need. The real question is: do you know what your policy covers? Every agreement is different.

The one thing I’ll tell you as landlords — as regular people, whoever you are — is do not be nonchalant about your insurance. Understand what it covers, and be specific for each property. Whether it’s vacant, occupied, a rental, a vacation home, or an Airbnb, make sure your insurance company knows exactly what it is. Why? Because insurers are businesses, just like the rest of us — the more they pay out, the less they make. They don’t want to pay out if they don’t have to, so you need to know precisely what you’re covered for. Work with a professional you trust, and lean on good contacts in the insurance world when you take on different properties.

The Horror Story Begins

I want to share a story I heard from Azita Fathi, who you may remember from Prime Service Insurance — she was on an earlier CRESI Ontario Landlord Series episode about insurance for basement-apartment landlords. She told me about a colleague’s client, a landlord right here in the GTA.

The landlord decided it was time to get out of being a landlord and sell the property. It sold, with a closing date on the first of the month. The tenants were moving out on the 15th of the prior month — leaving about two weeks in between for the landlord to get the property cleaned up for the new purchaser. (Note: selling with tenants still in place is not something we recommend — that’s covered in our episode on selling a tenanted property.)

When Tenants Move Out Early

Something happened in that two-week gap. Maybe the departing tenant handed a key to a friend, a colleague, or someone they didn’t really know — who knows. But somebody got into that unit after the tenant left and before the landlord’s cleaner arrived, and they changed the locks.

The Squatter Party Disaster

From what we found out afterward, they threw one heck of a party for days, damaging the inside and putting holes in the walls. Now, who pays for all that? It got worse: the new buyers were coming in on the first, but the locks were changed and people were inside, so the seller couldn’t give access. The seller was now in breach of contract for not closing on time, had to compensate the buyer, and had to cover the interior damage.

And here’s the insurance part this was all about. When the seller told the insurance company what happened, the claim ran into a wall — because once the tenants vacated on the 15th, it was no longer a tenanted rental. It had become a vacant property, which is different insurance and different coverage. So the seller had to cover all the damage themselves. Two lessons: whenever a tenant leaves, spend the $100 to $150 to change the locks — keeping the unit private and secure is still your responsibility — and make sure your policy matches the property’s actual status.