Sober Homes: Do You Have to Tell Your Landlord That You’re Renting As a Sober Home?

Do federal regulations protect a sober home’s method of housing? This misconception can create a dangerous “blind spot” in insurance coverage.

The Misconception: “It’s the Same as Renting to a Family”

“One of the objections I’ve heard to [telling landlords that they are renting to a sober home] from sober home operators is that there are federal regulations saying that if you rent to a group of people in recovery, it’s the same as renting to a family by state law or by federal law,” Daryl Henry, a managing partner, says.  “They’ll say, ‘Well, federal law says that’s not the case, so they can’t treat it that way.'”

The Fair Housing Act mandates that a group of individuals in recovery be treated identically to a family for housing purposes. While this holds true for protecting residents from discrimination in housing access, it does not extend to how insurance companies assess and price risk.

The Insurance Reality: Sober Homes Are a Business, Not a Family

Insurance companies operate on actuarial data and risk assessment. From their perspective, the primary factor is the use of the property and the associated risk profile, not the legal definition of a “family” for fair housing purposes.

Chris Graham, an insurance advisor who works with sober homes, explains: “Especially if they do lease it to a business, they start getting very restrictive when they find out what type of business that they’re leasing to. They’re not just leasing to a house with five roommates there… They’re leasing to a house of people who are in recovery.”

Here’s why insurance companies differentiate:

• Business Use Exclusion: Standard landlord and homeowners policies almost universally contain “business use” exclusions. These are designed to prevent the policy from covering commercial activities on a residential property.
• Increased Occupancy and Activity: A sober living home might house more individuals. More occupants generally mean more wear and tear, greater utility usage, and statistically higher potential for incidents.
• Specific Risk Factors: Insurance companies recognize that environments supporting individuals in early recovery may present unique exposures:
  • Increased Liability: The communal nature increases the potential for slip-and-falls, altercations between residents, or claims related to supervision and care.
  • Vulnerable Population: The presence of a vulnerable population can elevate the severity of liability claims, particularly those involving professional liability or abuse and molestation.
• Underwriting Parameters: Insurers often have specific underwriting guidelines for properties leased to businesses, requiring different policy forms, higher premiums, and stricter terms.

The Danger of Misplaced Trust

Relying on the federal housing law misconception when obtaining insurance can lead to catastrophic consequences:

• Claim Denial: If a major incident occurs, the insurance company can deny the claim entirely, citing misrepresentation of the property’s use.
• Policy Non-Renewal: Once the true nature of the occupancy is discovered, the insurer will almost certainly non-renew the policy, leaving the property owner or sober home operator in a difficult position to find new coverage.
• Personal Financial Exposure: Without proper commercial coverage, the property owner’s personal assets could be at risk for claims.

The Path to Proper Coverage

The solution is straightforward:

• Full Disclosure: Always inform your insurance broker and carrier that the property is being used as a sober living home.
• Specialized Policies: Work with a broker who specializes in addiction treatment insurance and has access to carriers willing to underwrite sober living properties.
• Accurate Named Insured: Ensure the policy correctly lists the sober home’s business entity as the named insured, distinguishing it from the property owner.

Understanding that insurance companies assess risk based on actual property use, not just on legal definitions for housing purposes, is fundamental to securing appropriate and reliable coverage for your sober home. This helps protect your critical mission and financial stability.