Should Real Estate Investors allow a Tenant to Conduct a Daycare Business in Their Rental Property?
By Lynn Hahn

As a real estate investor, I would prefer to never rent one of my properties to anyone that plans to use the property as a day care center. Allowing a tenant to operate a day care center in your property makes “you” very vulnerable to lawsuits.

In lawsuit happy America anything that goes awry results in a lawsuit against the person most able to pay, not necessarily the one who was at fault most specially in cases that concern home insurance policies and properties. In this case it will be you, the owner of the property, not the tenant. The attorneys are going to see “you” and “your insurance” as the perceived deep pockets. You will be exposed and you will be a great target to a law suit.
You need to get good legal advice and give the balance of risks and rewards careful consideration before you allow a daycare business in one of your properties.

A child getting injured on your property is the greatest concern. Even if you personally inspected the property beforehand, there is no guarantee that something will not change that creates a situation where a child could get hurt.

Below are a couple of examples of huge lawsuits against daycare operators. You will notice in the first case that the lawsuit was filed not only against the people who were likely negligent (the daycare owners), but also against the lawnmower manufacture and the store who sold the lawn mower. In the last lawsuit the church who owned the property (the landlord) was also named in the lawsuit.

I want to point out that I am not saying these lawsuits are frivolous. What I am trying to do is scare the heck out of any real estate investor who is contemplating allowing a day care in one of their investment properties. Frivolous or not, you don’t want to find yourself on the receiving end of one of these lawsuits.

Lawn mower death prompts parents to file $6 million lawsuit

The parents of a small boy killed when a riding lawn mower ran over him have filed a $6 million lawsuit that seeks answers and accountability for the accident.

Justin Simmons was playing unsupervised in the back yard of a home-based day care center in Botetourt County the morning of April 22 when he wandered into the path of the lawn mower as it backed down a slope.

The 4-year-old died of massive head injuries.

A lawsuit filed Tuesday in Roanoke Circuit Court places the blame for the accident on four defendants:
MTD Products, the Cleveland-based company that manufactured the lawn mower; Lowe's Home Center, the store that sold it; Orvil Reedy, the man who operated it the day of the accident; and Reedy's wife, Roberta, who was caring for Justin at a day care business run from her Daleville home.

Source: The Roanoke Times

 

Day Care Faces Lawsuit Over Child's Fatal Heat Stroke

A woman filed a $5 million lawsuit against a Texas daycare after her 4-year-old son died of heat stroke while under their care. According to the lawsuit, the center violated the child's rights by failing to provide a safe environment in the state-licensed daycare. Investigators charged the center with reckless injury to a child.

Source: The Dallas Morning News

 

When Madmen Attack

On May 3, 1999, a crazy man drove his vehicle at 50 miles an hour into the chain link fence that then surrounded the playground, aiming right at the children playing there. Two children were killed and several more mangled all because nutcase Steven Abrams wanted people to take the voices in his head seriously.

This wouldn’t be modern America if there weren’t lawsuits. One, brought by the parents of the slain children, seeks to hold the daycare and the church that owns the property accountable for not having a better fence.

Source: Orange County Weekly


Besides accident risks, real estate investors should also check to see what, if any, businesses are allowed in residences and what permits are required. The failure of your tenant to have the right licenses and permits could increase your liability should a problem arise on your property.

If you insist on allowing a daycare in your investment property then at minimum do the following:

  • Talk to your real estate attorney first. Maybe he can talk you out of it.
  • See that your tenant has a large liability insurance policy, with you and your real estate company named as a loss payee. Make double sure you will be notified if the policy lapses. Be sure this insurance requirement is included in your written lease.
  • Finally, purchase your own large umbrella policy to cover your liability. Ask your insurance agent for advice on coverage.

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