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| What is a fractional owner’s responsibility if a renter using the apartment during the owner’s assigned usage period causes damage or steals? |
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A fractional owner is responsible for the cost of repair or replacement of all items damaged or removed during the owner’s usage interval, regardless of whether the owner uses the property him/herself or allows someone else to use it. While limiting the fractional owner’s responsibility for damage or theft by a renter might seem reasonable at first blush, it becomes clear upon further reflection that this approach is unfair to the other owners. Consider, for example, a system under which each non-owner who uses the property is required to make a security deposit of, say, $2,000, and this amount is the limit of the owner’s responsibility for damage or loss. Now assume a tenant using the property during Owner #3’s usage block causes $5,000 worth of damage. Under the hypothetical arrangement, Owner #3 is not responsible for the $3,000 repair cost beyond the security deposit; so who is? The answer is that the other fractional owners are ultimately responsible, and while they might be able to sue the tenant for the loss, they would have to incur the cost of such suit and the ensuing collection efforts, as well as the risk that the collection would be unsuccessful.
So what is wrong with having the group bear this cost and risk? After all, everyone has the right to allow others to use the property, and the loss could have just as easily have occurred during a different owner’s usage block. The problem is that we would have removed each owner’s right to make his/her own decisions about assuming these costs. Each owner should be entitled to choose to avoid the risk altogether by not allowing others to use the property during his/her usage block, or to take efforts to (theoretically) limit his/her exposure by only allowing use by close friends or family members. By limiting each owner’s risk to the $2,000 security deposit, and thereby shifting the risk of losses above this amount to the other owners, we have removed each owner’s freedom and control on this issue of risk exposure and forced each owner to share the consequences of decisions made by another owner.
What about an approach under which an insurance company, management company, or rental agency assumes the risk of loss? This approach is fine so long as the associated costs are not ignored. The reality is that the entity assuming the risk will need to be compensated, whether in the form of insurance premiums, higher management fees, or higher rental agency fees. It is unfair to make the entire group to pay these costs for exactly the same reason it would be unfair to shift the risk of excess loss to the group. Instead, each owner who chooses to allow others to use the property during his/her usage block, and wishes to limit his/her exposure to damage or loss, should be entitled to seek “coverage” from an insurance company, management company, or rental agency at his/her own cost.
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