AB 121 & Renters Insurance Fees

Background

Section 5, subsection 6 of AB 121 states:

“Except as otherwise provided in subsection 8, in each place where a landlord lists the amount of rent due under a rental agreement and in any reference in a written rental agreement to the amount of rent due under the agreement, the rent must be set forth as a single figure representing the maximum total amount of periodic rent that includes the amount of any mandatory fees to be charged to the tenant in addition to the base rent.”

Section 5, subsection 7 of AB 121 states:

“Except as otherwise provided in subsection 8, a landlord shall not charge a tenant an amount of periodic rent that exceeds the maximum total amount of rent due under a written rental agreement, as set forth in the manner required by subsection 6.”

Taken as a whole, these provisions require a landlord to utilize a maximum total periodic rent (MTPR) amount in the lease and in advertising – and the MTPR is comprised of all mandatory (recurring) fees due in addition to the base rent. Further, a landlord is prohibited from charging – and collecting – any mandatory fee that was not included in the MTPR. 

It is the policy of many landlords to require their tenants to obtain renters liability insurance for the term of the tenancy. These policies and their specific requirements are set forth in the lease agreement or via separate addendum. To the extent these policies result in the imposition of fees upon tenants, there is a question as whether such fees must be included in the MTPR stated in the lease and as advertised, or if they may be excluded while remaining enforceable. 

Landlord’s Policies

Inclusion of renters’ liability fees in the MTPR will largely depend on the structure, requirements, and specific practices of the policy adopted by the landlord. The examples described below represent the most common types of policies employed by Nevada landlords, however, this list is not exhaustive of all policy types, nor does it take into consideration any deviations or minor policy differences which can impact the evaluation as to whether insurance related fees should be included in the MTPR. 

1. “Renters Liability Insurance Is Optional”

Landlords may choose to not expressly require their tenants to obtain renters liability insurance coverage. In lieu of same, landlords typically place the tenants on notice that while renters’ liability insurance is not required, it is strongly recommended that they obtain this coverage. 

In this type of adopted policy: (i) obtaining coverage would be at the tenant’s sole election; (ii) they would be contracting directly with a provider of their choosing; (iii) any associated fees would be paid directly by the tenant to the provider, and not the landlord; and (iv) the provider is the party to properly enforce any default in the payment of associated fees, and not the landlord. Considering these factors, any associated fees would not be “mandatory” so as to require their inclusion in the MTPR for compliance with AB 121. Landlords that are excluding these unknown fees from the MTPR stated in the lease and in advertising are in compliance with the law.

2. “Renters Liability Insurance is Required from a Provider of Tenant’s Choice”

Landlords may choose to expressly require their tenants to obtain renters liability insurance coverage via the terms of the lease agreement. Typically, these provisions require the tenant to provide proof of such coverage at the onset of tenancy, maintain such coverage for the duration of the term, and that any failure to comply with same is considered a material default of the lease agreement. Typically, these provisions allow the tenant to obtain renters liability coverage in the required amount from any insurance provider of their choosing (subject to minor restrictions – i.e., licensed and in good standing, etc.). 

In this type of adopted policy: (i) the tenant has sole discretion as to their renters liability provider of choice; (ii) the tenant contracts directly with the insurance provider, and not the landlord; (iii) the fees associated with this coverage are being paid to the insurance provider directly, and not the landlord; and (iv) the provider is the party to properly enforce any default in the payment of associated fees, and not the landlord. Considering these factors, the prevailing interpretation is that associated fees for coverage would not be “mandatory” so as to require their inclusion in the MTPR of the lease, or in advertising, in order to comply with AB 121. 

There is an alternative interpretation that may be advanced with respect to these types of policies. Considering that the tenants must incur associated insurance coverage fees in order to stay compliant with the lease agreement (and may be subject to default and potential eviction if they fail to do so), incurring such fees may be considered a requirement of the landlord so as to render them “mandatory” and require their inclusion in the MTPR of the lease and in advertising.  

There are considerable issues with adopting this alternative interpretation and requiring 3rd party fees to be included in the MTPR:

• This interpretation appears to be outside the legislative intent of AB 121. The intent of AB 121, as described in various committee hearings and work sessions, was to require landlords to utilize a total periodic rent figure comprised of all fees and charges that a tenant needed to pay to the landlord as consideration for such rental. The intent of AB 121 was to place the total rent price front and center in the lease (and in advertising) so as to avoid the practice of stating only “base rent” with various additional fees and charges scattered throughout the body of the lease and in addenda. The intent of AB 121 and the use of these described practices was to avoid confusion; the tenant would know exactly how much it must pay to the landlord as rent each month without having to search or conduct unnecessary calculations. Requiring a landlord to include in the MTPR amounts that it is not charging the tenant directly for was not the intent of AB 121, and doing so will have the opposite effect in terms of removing confusion and simplifying the parties’ understanding of what is considered “rent.”  
• AB 121 is clear as to how fees incurred directly from providers are to be treated with regard to the MTPR.  Pursuant to AB 121, electric, gas, and water utilities contracted for directly by the tenant with the provider, and paid to the provider directly by the tenant, are NOT considered mandatory fees which need to be included in the MTPR. In fact, these utility fees are only required to be included in the MTPR if the landlord or its billing agent is the party billing the fees. We know this because AB 121 expressly requires electric, gas, and water charges to be included in the MTPR unless the tenant cannot contract directly with the utility provider (and in the case of water, if the property is master metered). Fees charged by an insurance provider and paid directly to the provider by the tenant pursuant to a direct contract between those parties are no different than electric, water, and gas utilities charged by the utility provider and paid directly to the utility provider pursuant to a direct contract between those parties. Accordingly, they should be treated exactly the same and should be considered “mandatory charges” required to be included in the MTPR. 
• Assuming in arguendo that such fees are considered “mandatory,” landlords have no ability to include such fees in the MTPR because they have no knowledge of the specific fees that insurance providers may charge a tenant to obtain required coverage. The fees will vary by provider and depending upon a variety of underwriting considerations and circumstances. It is impossible for a landlord to “guess” as to the fees each individual tenant may incur from these providers. Absent knowledge of the specific fees to be charged, the landlord has no ability to properly include them in the MTPR. 
• Assuming in arguendo that such fees are considered “mandatory” and must be included in the MTPR, the specific fees to be charged by the insurance provider may not be known to any party until after the lease has already been executed. Insurance providers require information concerning the location of the rental property and some proof that the tenant has a right of occupancy to such premises before providing a policy of coverage. The executed lease agreement serves as such proof of occupancy rights. A landlord cannot be expected to include associated fees in the MTPR of the lease if such fees are dependent upon the lease first being executed. 
• Requiring that 3rd party fees of the insurance provider be included in the MTPR creates an untenable slippery slope which would presumably require each and every fee, cost, or expense incurred by a tenant from a 3rd party in relation to the tenancy to also be included in the MTPR. Compliance with this interpretation would be impossible. By way of example, Nevada law (and most leases) imposes an obligation upon every tenant to maintain the leased premises in a clean condition. Complying with this statutory (and contractual) obligation will undoubtedly expose tenants to related ongoing expenses and fees from 3rd parties. At a minimum, cleaning supplies may need to be purchased by the tenant; some tenants may seek to retain cleaning services of a 3rd party provider. If the costs associated with renters’ liability insurance required by the lease are deemed “mandatory” fees to be included in the MTPR, then the costs associated with cleaning the premises and maintaining it in a clean condition as required statutorily must also be included in the MTPR. There is no clear dividing line as to which fees resulting from required obligations must be included or excluded from the MTPR.  

For all of the reasons stated above, such fees do not appear to be “mandatory” so as to be required to be included in the MTPR of the lease agreement or in advertising. While this remains the prevailing interpretation at present, neither this interpretation nor the alternative has been sufficiently clarified judicially or legislatively; until that time, this will continue to present a dispute and source of potential exposure for landlords choosing to dismiss the applicability of the alternative interpretation – especially with respect to advertising. AB 121 was specifically intended to increase transparency and disclosure in advertising and prevent so-called “bait and switch” scenarios created by unknown additional fees being added at time of lease-up. Given this intent and the potential problems associated with a landlord’s failure to address certain required fees at time of advertising, landlords are encouraged to provide some form of disclosure in advertising as to both the requirement that tenant obtain such insurance coverage, and the costs associated with same – even if simply stated as an estimate. Employing the approach would be in the abundance of caution and to avoid a dispute that such advertisement was not in line with the spirit and intent of AB 121.  

3. “Renters Liability Insurance is Required, and Landlord will Force Placement at Onset”

Landlords may choose to expressly require their tenants to obtain renters liability insurance coverage via the terms of the lease agreement. In lieu of other policies which allow the tenant to choose their desired provider, this type of policy requires the tenant to utilize a specific provider (or a specific program or product of such provider) given the existence of a pre-existing contractual relationship between the provider and landlord. With this type of adopted policy, the landlord “forces placement” of the coverage at the onset, the monthly coverage fees are known to landlord and are typically paid by the landlord in advance, which requires the tenant to pay the landlord directly for such fees as reimbursement.   

In this type of adopted policy: (i) the tenant has no choice in the provider of renters liability insurance and must use the landlord’s required provider or program; (ii) the tenant is usually not contracting directly with a provider; (iii) the fees associated with any coverage are usually being paid to the landlord as reimbursement; and (iv) the landlord is the party to properly enforce any default in the payment of associated fees, not the provider. Considering these factors, the prevailing interpretation is that associated fees for forced placement of coverage would be “mandatory” so as to require their inclusion in the MTPR of the lease, and in advertising, in order to comply with AB 121. 

It is important to note that variations of this type of adopted policy do exist. One such variation – allowing a tenant to “opt out” of forced placement insurance coverage during the tenancy by obtaining their own coverage (policy example B) – is common.  If permitted by such policy, a tenant opt-out would likely necessitate an amendment to the lease be executed and reflecting the change (reduction) in the MTPR. 

4. “Renters Liability Insurance is Required; Landlord will Force Placement on Default” 

Landlords may choose to expressly require their tenants to obtain renters liability insurance coverage, and to require that tenants provide proof of such coverage at the onset of tenancy and maintain such coverage for the duration of the term (Policy Example B). However, some landlords will elect to “force place” a form of acceptable liability coverage upon a tenant in the event of their failure to comply. This forced placement of coverage typically results in the imposition of a monthly fee to the tenant as set forth in the lease agreement – with the fee continuing on a reoccurring basis unless the tenant takes affirmative steps to restore their compliance (i.e, obtain their own policy of coverage, reinstate any terminated policies, provide proof of compliance, etc.). 

Initially, this type of adopted policy has the same or similar factors discussed in Policy Example B. To this end, landlords should take into consideration those prevailing and alternative interpretations discussed above with respect to associated fees in the MTPR of the lease agreement and in advertising. 

When insurance coverage is forced placed by the landlord pursuant to this policy and upon tenant’s default; (i) the monthly fees for coverage are imposed upon the tenant by the landlord; (ii) the monthly fees for coverage are usually paid by the tenant to the landlord directly; and (iii) the landlord is the party to properly enforce any default in the payment of associated fees. Normally, these factors would illustrate that such fees are “mandatory” so as to be included in the MTPR of the lease and in advertising to comply with AB 121. However, when considering that the imposition of a forced placed monthly insurance related fee is ultimately the result of the tenant’s breach or failure to comply with the lease, and that the tenant can typically avoid future forced place insurance fees by regaining compliance with the lease, such forced place insurance fees are likely not considered “mandatory” so as to require their inclusion in the MTPR for compliance with AB 121. To clarify, these forced place insurance fees more closely resemble that of a “one-time” or “per-occurrence” fee charged due to default – similar to late fees. Late fees, which are charged upon the tenant’s failure to pay timely rent as set forth in the lease, are not considered “mandatory” fees that need to be included in the MTPR of the lease or in advertising.  Forced place insurance fees charged as a result of tenant’s failure to comply with the lease and obtain their own policy of coverage appear to be no different and should be treated in the same fashion. 

5. “Enrollment in a Liability Waiver Program is Required”

In lieu of requiring their tenants to specifically obtain renters liability insurance, some landlords may choose to require tenants to consent to some form of liability or indemnity waiver. While often confused with renters’ liability insurance requirements, these waiver programs do not directly provide tenants with any form of renter’s liability insurance. To the contrary, the tenant is simply provided a waiver of liability for certain losses up to an established amount, in exchange for payment of a monthly fee to the landlord. Landlords adopting such policy are able to provide the tenant with a waiver of liability because they have obtained independent insurance covering losses caused by the tenants; the tenant’s payment of a monthly fee for such waiver serves to reimburse landlord for the costs of that coverage they have already obtained. 

In this type of adopted policy: (i) the landlord is imposing monthly fees upon the tenant in exchange for providing the agreed-upon waiver; (ii) the tenant is contracting directly with the landlord, and not any 3rd party provider; (iii) the fees associated with the waiver are being paid to the landlord as reimbursement; and (iv) the landlord is the party to properly enforce any default in the payment of such fees. Considering these factors, the prevailing interpretation is that fees imposed upon the tenant in relation to the provision of the waiver would be “mandatory” so as to require their inclusion in the MTPR of the lease, and in advertising, in order to comply with AB 121. Such fees are not unlike any other monthly recurring fee imposed by a landlord and must therefore be included in the MTPR. 

It is important to note that many variations of this type of adopted policy do exist. For example, landlords may choose to allow tenants to “opt-in or out” of the program when desired, require tenants to obtain renters insurance liability insurance in addition to enrollment in the waiver program, or apply the waiver program in limited fashion – such as in the event of certain tenant defaults (similar to forced placement insurance). In the event of variations from the general policy example described above, landlords are encouraged to apply the associated guidance with respect to AB 121 compliance and inclusion of associated fees in the MTPR.   

Conclusion

Given the language of AB 121 and the lack of any judicial or legislative clarifications, determining compliance with the law remains a difficult task. This remains especially true with respect to renters’ insurance liability fees which may be imposed via a myriad of differing policies and practices adopted at the landlord’s discretion. Until such clarifications are received, landlords should properly evaluate compliance with the assistance of their legal counsel. Furthermore, landlords are encouraged to err in favor of disclosure and transparency in advertising and MTPR inclusion in the abundance of caution and so as to avoid potential disputes and noncompliance allegations from arising.  

Legal Disclaimer

The information provided is based on preliminary review of a law that has recently become effective and accordingly, has not been afforded an opportunity to be formally interpreted by the judiciary – both as to practice and compliance. To this end, this information is subject to change as such interpretations are provided and as new developments arise. The information provided in this document does not, and is not intended to, constitute legal advice; instead, all information in this report is for general informational purposes only. Information in this document may not constitute the most up-to-date legal or other information. Viewers of this material should contact their attorney to obtain advice with respect to any particular legal matter. No viewer of this material should act or refrain from acting on the basis of information in this presentation without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this presentation does not create an attorney-client relationship between the reader and Karsaz Law. All liability with respect to actions taken or not taken based on the contents of this presentation are hereby expressly disclaimed.