Whoops…I meant with a Lobster Clause.
You may not have been there before, but eventually you will, and sooner rather than later if you own multiple properties. Scenario:
Tenant’s out for the day, or away for an extended period. Electrical malfunction results in the fridge circuit going down, and by the time the tenant returns, all their food has gone bad. It could even be that the fridge went on the fritz, and by the time you could get another one over there or get it repaired, all the food has gone bad.
And they want YOU to pay for it all.
Oh, and by the way, they just went shopping.
Oh, yeah, and all those groceries rang up around $300.
If you haven’t clearly defined in your lease who bears responsibility for food spoilages as a result of legitimate equipment failure, then you are leaving the fridge door open for all kinds of claims of iceboxes full of shrimp and caviar that will be demanded to be reimbursed for spoilage from your tenants.
There are a few ways to insure that when a tenant comes a knockin’ for money for food loss, your budget won’t take a rockin’.
A few years ago, we built into our leases language that stated very clearly that failure of appliances was commonplace and unexpected, and tenants should be prepared to relocate food from refridgerators in the event of equipment failure. Another thing we did was to inform them that loss or damage of ANYTHING in their unit was to be covered under an appropriate renter’s insurance policy. We even pointed them to several insurance company’s in their move-in package so that they couldn’t claim later they couldn’t find anyone that sold those policies. Now, we have even gone the route of requiring rental insurance policies for certain properties (mainly newly renovated ones), and mandated that we be added as an additional insured until their move-out, but that is a topic for another post.
Any type clause in a lease designed to (justifiably) deflect liability for food spoilage back to the tenant as a result of food loss is known as a ‘Lobster Clause’, as a joking reference that whenever such claims are made, suddenly the spoilage consisted of $15/pound Maine Lobster, instead of what it actually is, like, say TV Dinners and Chicken Thighs.
I recently read a post on an investment group site that I’m on, where a landlord takes it one further, making the appliances on move-in all as-is. Here is how his Lobster Clause reads:
Although there may be appliances in the unit, their availability is not included in the rent. If TENANT wishes to use the appliances, they agree to assume all responsibility for care and maintenance. If TENANT wishes to use their own appliances, they may request that those in the unit be removed or stored.
An argument could be made that this clause may degrade your ability to attract a renter as a result of the possibility of having to buy new appliances at some course in their lease, but in that most renters treat appliances about as well as you or I treat rental cars, it certainly could be a substantial cost saver over time as appliances break. Only drawback is the moveout where the tenant bought their own appliances and takes them with them, and now you are forced to show without appliances, or offer to buy theirs. It still pushes an expense down the road a bit, though.
I hope that this discussion is yet another tool you can put into your lease to prevent drama in your landlording experience, and more importantly, hits to your cash flow.
REMEMBER, IT’s NOT ABOUT THE JOURNEY, IT’s ABOUT THE DESTINATION