Q: I rent an in-law unit in a single-family home, in a city with rent control. I happen to know that the unit is illegal — it does not have a permit. My landlord says that because the structure is a single-family home, it’s outside of rent control, so he doesn’t have to abide by the yearly permissible rent increase. What do you think? –Axel T.

A: Consult your rent control ordinance and see what it says about coverage under the ordinance. A thoughtfully written ordinance (or perhaps regulations that express it or court decisions that interpret it) will not support your landlord’s theory.

For example, by state law single-family homes are not rent-controlled in California, but San Francisco has its own definition of what constitutes a single-family home. In that city, if the structure has only one rental unit (the whole house), it’s single-family and the rent is not controlled. But if there’s a second unit, it’s no longer single-family, even if the second unit is not legal. You can imagine the reason why — if this were not the case, owners would have every incentive to flaunt both laws: the permitting process and the rent control ordinance.

I suspect the answer will be the same in any rent-controlled city. Even in the absence of a clear definition as is so in San Francisco, a judge would be loath to award a lawbreaker by allowing him to escape the city’s intent to regulate multifamily housing. Even though an in-law unit is small and the resulting "multi" is rather small, that’s still the target of ordinances that seek to control rents.

Q: Our restaurant was in an area affected by Hurricane Sandy. Most of the neighborhood was flooded, but our property, which was on higher ground, escaped any damage. Still, the neighborhood has been decimated, and with all of the businesses closed and the residents displaced, we have no business. I tried to make a claim on our business interruption policy, but my broker told me it would probably be denied. How can that be? –Jared H.

A: The policy you’re referring to is known as business income coverage. The standard policy covers your net profit or loss (before taxes) had the disaster not happened. In a retail establishment, this figure is the gross sales or receipts minus operating expenses. Insureds must prove these figures during the normal claims process. Importantly, if the business was not operating at a profit before the event, in some states the owners are not entitled to business income insurance proceeds.

Conversely, if the business becomes more profitable after the event (as happened to some construction firms post-Katrina), there’s no loss and no payout from the insurance company. Most policies include coverage for normal operating expenses, which includes payroll.

All of this might sound like it fits your situation exactly: There was a disaster; you have no customers, so your profits are down. Why wouldn’t the policy step up and cover you?

Sadly, there’s one important requirement before business income coverage will apply: Your property must have directly suffered a loss or damage that you had insured against (in your property insurance). In insurance lingo, the policy will apply had the covered cause of loss (the damage) set out in the policy’s property loss policy not occurred. Though it’s far from obvious, this means that you must have suffered a loss that is covered under your property insurance policy, before the business income policy will kick in. And because you did not sustain any damage, you did not have a covered cause of loss, and your business income relief is not available to you.

But wait, there’s more negative news. Most property policies include "water damage" as a covered peril, but not flooding; for flooding coverage, you’d need a special flooding policy, which you apparently don’t have. So even if your business had been inundated by water and shut down, and your income dropped as a result, unless your company considered the cause "water damage" and not flooding, you’d be out of luck.

That said, in times of huge losses, some insurance companies (especially those with a lot of affected clients) will pay claims for flooding, in effect agreeing to consider the issue one of water damage, as a goodwill gesture.

Is there any other angle you might pursue? Interestingly, if water damage (but not a flood) causes damage to properties other than your own, prompting local authorities to issue evacuation orders, that act by the civil authorities will trigger your business interruption coverage.

So, for example, if a fire were to destroy a business, causing the city to seal it off the street with "do not cross" signs and barriers, affected businesses who experienced a drop in profits would be able to call upon their business interruption policy. Such policies typically provide for only four weeks of coverage, and the damage to the other property has to be within a one mile radius of the claimant’s property (good agents will increase the coverage duration and the mileage limitation).

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