Australia’s expanding illicit drug problem is having an ever-increasing impact on investment property owners, with a growing number of rentals being contaminated by meth. Along with contamination come accusations – squarely levelled at the agent – about how it was allowed to happen.
There’s a new headline every day, it seems, about the problem of meth in rental properties. Also when agents are accused of being responsible for allowing unsavoury elements to rent the property or not conducting adequate inspections. Most then find out they have no coverage through their Professional Indemnity (PI) insurance.
The sad reality is rentals are frequently used as ‘clan labs’ where various drugs are illegally manufactured. Some drugs, like methamphetamines, can be ‘cooked’ in residential kitchens and it is happening increasingly in investment properties in both metropolitan and rural areas.
According to the Australian Criminal Intelligence Commission, 463 clan labs were detected across Australia in 2016‑17, with the majority addict-based (49.5 per cent) and located in residential areas (63.9 per cent).
Fires, explosions and other damage are the obvious ramifications of finding out a rental has been used to manufacture meth.
But beyond the scorch marks, there can be a far less obvious problem lurking. Whether it’s a lone addict mixing up their own fix, or part of an organised crime gang’s operations, the after-effect of having a property used to manufacture meth can be one of contamination.
Dangerous chemicals, including lithium metal, liquid ammonia, LPG, acetone, hydrochloric acid and caustic soda, are used when cooking ice and other meth-based drugs.
They can leave a highly toxic residue which can seep into soft furnishings, carpets, timber floors, door frames, walls and ceilings.
If a property is found to have been used as a meth lab, it will need special forensic cleaning which can cost tens of thousands of dollars. In some cases, homes have to be demolished and rebuilt.
Despite even the most extensive due diligence (checking rental databases, comprehensive reference checks, credit checks, police clearance, ID verification) criminals find ways to beat the ‘checks and balances’ system.
Is your landlord covered?
From an insurance perspective, when a rental has been used as a meth lab there are two main areas for claims – damage and liability.
When it comes to damage, many landlords find their insurance policy excludes drug-related claims. Unlike most landlord insurers, RentCover provides policyholders with up to $65,000 for cleaning up a drug-contaminated property.
If the damage is caused by tenants during the period of insurance, along with other costs incurred, including lost rental income while the property is remediated.
Many insurers consider the manufacture of drugs on the premises as operating a business, an activity which is generally excluded from cover.
Other insurers specifically exclude any claims relating to contamination. In other instances, the damage caused – for example malicious (home trashed in a drug-fuelled rampage, showered with bullets in rival gang retaliation), accidental (kitchen catches fire, garage explodes) or deliberate (electrics rewired, security installed) – will not be covered.
Whatever the reason behind the exclusion, the outcome is the same: the landlord has no cover and has to pay for repairs (potentially even demolition and rebuilding) themselves.
Aside from the cost of repairing damage caused by the home being converted into a drug den, the lingering presence of toxins presents a liability risk.
Allowing a contaminated home to be occupied may breach the Residential Tenancies Act (duty of care) legislation in each state or even contravene building and health legislation, leaving the landlord exposed to legal action and claims for compensation.
Cover for liability associated with contamination is treated similarly to damage by most insurers. Once again, landlords can find they have no cover in the event they are sued for negligence by allowing the premises to be leased when it was not in a fit state.
Who is accountable?
Faced with the prospect of not being adequately covered through their own landlord insurance, many investment property owners quickly turn their attention to their agent – and the finger-pointing is becoming increasingly common.
No licensed agent would knowingly rent a property to someone they suspected was likely to operate a drug lab from the premises.
But despite even the most extensive due diligence (checking rental databases, comprehensive reference checks, credit checks, police clearance, ID verification) criminals find ways to beat the ‘checks and balances’ system.
It is not uncommon for organised crime gangs to send in dummy prospective tenants with impeccable presentation and references, only for those people to never set foot in the premises while it is occupied by ‘cooks’ and dealers.
More and more agents are being held accountable by a landlord (or by the landlord’s insurers looking to assign culpability) for issues relating to meth contamination. But what many agents don’t realise is their PI cover is likely to exclude any claims.
Most PI policies in Australia do not offer cover for any sort of chemical contamination (there is often a ‘pollution’ exclusion clause), leaving agents exposed.
TIP: We recommend agents are aware of their obligations in their state relating to disclosing material facts and information about the presence of meth contamination too. In order to meet statutory requirements and safeguard their PI cover.
How to protect yourself
Before you find yourself starring in your own personal version of Breaking Bad crossed with Law & Order, it would be wise to check your PI cover to make sure it offers adequate protection in the event you are sued for negligence.
At EBM RentCover we are seeing more instances where landlords are taking their agents to task for poor tenant selection and insufficient property inspections (breach of agents’ professional duty).
Laying the blame for meth contamination compensation claims at the agent’s door. Agents with PI cover obtained through EBM (EBM RentCover’s parent company) are covered in instances where the contamination claim arises from a breach of professional duty on the part of the agent. Many of their colleagues are not.
Globally, ice addiction is on the rise and demand for illicit manufacture is high. Now is the time to make sure your PI cover will protect you when you are issued with a ‘please explain’ by your landlord (or a ‘see you in court’ by their insurer joining you in an action or direct from a tenant seeking compensation) after the property was rented to someone who used it as a clan lab.
Claims against agents are rising; don’t find out the hard way you aren’t covered.
Source: Elite Agent
Decon Systems deliver meth testing courses and meth decontamination training in Brisbane, Sydney, Melbourne, Adelaide and Perth. View our course overview or speak to the team directly – 1800 088 994 | firstname.lastname@example.org