A typical situation we come across daily is a client who owns a property that is being rented out will entertain renting out the house not just to 1 family but to multiple, unrelated people living and sharing 1 house or a unit within a house.
It is important to understand that you must always clarify the exact occupancy your property has to your insurance company so they are aware of the occupancy or upcoming occupancy and whether or not they are still willing to insure it. Furthermore, many insurance companies will insure single family dwellings, but as the occupancy may change from a rooming house or student rental you will find there are less and less insurance companies willing to insure your property. Even if you are contemplating renting your house to a single family, you should check with your insurance company if they are willing to insure it.
Rooming House Definition
For many insurance companies, the definition of a rooming house is 3 or more unrelated people sharing 1 self-contained unit. A self-contained unit is an accommodation which has a kitchen and bathroom exclusively for that unit. If the tenants have to leave the unit to have access to a kitchen or bathroom the unit is no longer considered to be self-contained. Therefore if you have a house with 2 units with 2 tenants in 1 unit and 1 tenant in another unit, but they have to share a kitchen or bathroom this is not considered self-contained and your property would be considered a rooming house by many insurance companies. Although you should carefully note that each insurance company can have their own definition and it is important to check with your insurance professional what they classify your property as.
Common misconceptions of rooming house are:
- If everyone is on 1 lease it is not a rooming house. This is false. A rooming house at least for insurance purposes is described above, and it will not make a difference if your tenants are on 1 lease or you have a lease with each tenant.
- If there are no individual locks on the doors of rooms where tenants sleep it is not a rooming house. This is false. Regardless if you have locks on each door or not for insurance purposes a rooming house is described as above.
- If everyone pays on one cheque it is not a rooming house. This is false. Whether you take cheques individually or 1 cheque from one person for the entire house your property would still be considered a rooming house if you have 3 or more unrelated people living there sharing a unit.
Student Rental House Definition
From the 1980s until the early 2000s insurance companies used to classify all houses where there are 3 unrelated people sharing a unit as rooming houses. Lately, some insurance companies – but not all, are further distinguishing a rooming house from a student rental house. In which case, a student rental house would be defined as 3 or more unrelated people living in a self-contained unit where the tenants are enrolled in post-secondary education such as a college or university. In this case, some insurance companies may consider the property an actual student rental (as it should be) and others may just classify it still as a rooming house.
Insurance companies have denied serious claims because they were never made aware of a rooming house occupancy. Please refer to a court case Heer vs. Allstate, this is such case where a client had a homeowners policy and a claim was denied because the occupancy had changed to a rental property from homeowners.
As a Result
It is best to be open and transparent with your insurance company regarding the exact occupancy of your property. If you are entertaining different leases and you are in doubt, you should ask your insurance professional the insurance implications so they can further distinguish the type of policy you need or any necessary changes to your current policy if any. It is always best to ask before the occupancy changes as you might find yourself without insurance if you have a policy which will not be willing to insure the new occupancy.