Drug labs: landlords exposed if tenants undertaking criminal activity

Landlords could find themselves bearing heavy losses if their properties are rented by tenants who  undertake criminal activities if they don’t take out extra insurance to cover this sort of behaviour.

However, investigations by Property Observer indicate that obtaining the extra insurance needed may be hard to come by, with many insurers not readily covering this kind of activity.

It especially highlights the importance that property managers properly vet prospective tenants before signing lease agreements.

The issue has come to light following the reporting of two drug labs uncovered in rental properties in Melbourne and on the Gold Coast in the last few months.

In September, the Herald Sun reported that property investor Nicholas Milan Wyman would sue his property manager after suffering extensive damage his rental property in St Leonards, Sydney, which was used as a drug lab and where a corpse was dismembered.

Last week, the Gold Coast Bulletin reported that a police drug raid uncovered a drug lab in a rental property on the prestigious Isle of Capri.

Property Observer recently contacted the major landlord insurance providers, but only one – Terri Scheer Insurance – provided a definite response to the question of landlord recompense cover for criminal activity.

Another insurance provider, Perth-based EBM Insurance Brokers, has subsequently contacted Property Observer to say that its RentCover landlord insurance does cover drug lab clean-up costs and recently paid out a $50,000 claim to clean up a property used as a drug lab in Hoxton Park, NSW.

According to RentCover general manager, Sharon Fox-Slater, police discovered the laboratory by chance when investigating a child abuse allegation; the home was occupied by a family with four children aged under 10.

“We treated the claim as tenant damage because the ongoing liability is massive if the property is not cleaned correctly,” she said.

A spokesperson for Allianz Australia said the company could not provide any comments in relation to the example of the St Leonards drug lab story.

“We have looked into it, but there are some many potential complexities and unknowns in the scenario provided below that it is not possible to provide a simple response as to whether our landlords policy could respond in full or part to such an event,” said the spokesperson.

A spokesperson for CGU said the insurer had no comment.

Aon said it could not comment, though it does provide a professional indemnity policy for property managers with a “mismanagement extension”.