Disaster Planning – Part 3
In Review
In Part 1 of this series we discussed the reasons why every business, including the real estate rental business, should have a disaster plan and the preliminary steps to take toward developing a plan and in Part 2 we briefly discussed the development of a plan. In this final part of the series we briefly discuss some additional issues related to developing and implementing a plan.
Take Care of People
Planning and protection of the people in your business are critical components of your disaster plan. Employees, customers (tenants), clients, and your family deserve your best attention. A disaster plan demonstrates your concern for their welfare and safety and your efforts to protect their interests.
Employees
Because employees are the most vital asset for any business, a good disaster-recovery program must begin with preparing your employees in case of emergency and protecting them with a disaster plan.
The very basic step to protect your employees is to make sure that they have the telephone numbers to call in an emergency. The telephone numbers for police, fire department, utility companies, hospitals, and poison control centers should be posted in work locations.
Plan what you could do to ensure your employees’ safety. Develop an evacuation plan and train all employees in what to do in case of fire or other emergency.
Family
Families will always have concerns for the safety of their loved ones. Whether a business owner or an employee, letting families know of your safety and whereabouts is an important procedural part of your disaster plan.
Customers and Vendors
When a business experiences a disruption or closure, customers (tenants), clients, and vendors are naturally concerned how that might impact their business. Property management company clients will want to know about their properties. Vendors will need to know whether to show up as previously scheduled.
Tenants
Landlords and property managers have people to think about that most other types of businesses don’t have – tenants. Without tenants there will be no income for either the owner or the management company even though many of the expenses will continue.
Thinking about the tenants will be of benefit in several ways. First, tenants will feel that the landlord is concerned about their safety, health, and/or security, potentially improving landlord-tenant relations. Second, it will probably provide some protection from liability in case of actual occurrence of an event for which education was provided. Third, it may reduce risk of damage to your property.
Just as discussed above, basic emergency telephone numbers should be made available to new tenants and during a move-in orientation session or the move-in inspection, the landlord or property manager should provide instructions for water and gas shut off valves, circuit breakers, fire extinguishers, smoke alarms, or other equipment.
Priority should be given to fire prevention and fire safety practices because fire is the number one hazard that affects income property. Be sure your rental properties meet all safety requirements in accordance with building codes and fire regulations.
Investors who employ property management services and are themselves not involved with operation or management of the property should determine that the management company considers disaster preparedness for both the company and the tenants.
Take Care of Business
Once you’ve figured out how to keep your people safe, you’ll need to make sure that the business itself survives as well, whether the business is the management of your own rental properties or a property management company that manages properties for investors. That means implementing a plan that addresses your key business functions, who’s responsible for them, and what equipment or services you’ll need to keep running.
Recovery from interruptions in business can vary from a matter of a few hours to a few weeks or months depending upon the nature and severity of the interruption. If the disaster covers a widespread area, resource availability for materials and personnel may be limited and would further complicate recovery efforts.
Self Reliance
When it comes to almost any disaster, you shouldn’t count on Uncle Sam – or anyone else – to step in and fix problems. While city, county, and state officials may be sympathetic to your woes, they often can’t help. By the time you’ve filled out the applications and finally get some money, you might be out of business or your tenants may have all left.
Accordingly, the business that can be self reliant in the event of a disaster has an advantage. The quicker a business responds to crisis, the quicker it’s over and the less damage will result.
Communications
After a disaster strikes, the crisis team’s first job is communication – especially spreading the word to employees about the event and how the company plans to deal with it. For a crisis, the first 24 to 48 hours are critical. Misinformation fills a vacuum and without adequate communication, a lot of misinformation can get out and really damage a business.
For a sole proprietor landlord of only a few units, communication with tenants is often the highest priority.
Be sure that you have a way of contacting your family, employees, tenants, vendors and professionals (e.g., insurance agent or attorney) if you need to do so. Keep contact lists of telephone numbers, cell numbers, and email addresses of those contacts with you for ready access no matter where you are when disaster strikes.
Train & Practice
Once you get the basic emergency action plan written, tell your employees or, if no employees, the family members or other persons you expect to take over in your absence. Make sure they know what’s expected of them in an emergency.
Training is an important and relatively inexpensive part of emergency preparation that may save a life. More important, proper training can prevent an emergency from becoming a disaster and make all the difference between closing down operations for a few hours and being out of business indefinitely.
Following adequate initial training, most businesses should run practice drills on a regular basis.
Tenant Issues
One of the issues that must be considered in a real estate investor’s disaster planning is what happens to the tenants in event of complete or partial loss of their leased premises and what, if any responsibility the owner has in such an event.
The landlord tenant laws and case laws vary from state to state but most states hold that if a rental property fails to meet the basic habitability tests, the tenant is under no obligation to remain. In addition, local laws may also have specific health and safety requirements for rental properties.
In the event of a natural disaster causing destruction of the leased premises, the implied warrant of habitability holds the landlord responsible for repairing and maintaining the livability of the leased premises. Because the rental home was significantly damaged by a natural disaster or an event beyond the control and responsibility of the tenant, the tenant has the right to consider the lease at an end and move out of the leased premises. The tenant’s security deposit which is held to cover unpaid rent and any damage to the rental unit during the term must be returned to the tenant.
Thus the landlord/investor will have no rent coming for uninhabitable units and only a possibility of partial rent for partially uninhabitable units. Under certain circumstances the landlord may be responsible for assisting the tenant until replacement housing can be found.
A tenant’s problems are greatly reduced when the tenant has insurance that covers damage or loss of personal property from a named peril. Tenants may elect to add additional coverage for loss-of-use or additional-living expense which provides some money to cover things such as rent for temporary quarters following a disaster. Special coverage may also be available to tenants for disasters such as floods and earthquakes.
Fewer problems for the tenant will usually mean less trouble for the landlord from that trouble. Accordingly, tenants should be informed when signing the lease agreement that the landlord’s policy does not provide benefits to tenants and tenants should be encouraged to obtain a comprehensive rental insurance policy.
Leave a Comment
You must be logged in to post a comment.