Baking bad: Drug lab claims on the rise

November/December 2017 edition

Illegal drug manufacturing can cause considerable damage to rental properties and cost landlords thousands of dollars in repairs and subsequent lost rent.

By Jenna Sammut, Account Executive at Jardine Lloyd Thompson

The discovery of drug labs in rental properties is on the rise and, as a result, so too are the number of property management claims. While the size of these operations varies, from small-time meth cooks to large-scale manufacturers, they share something in common – the risk of causing considerable damage to the rental property resulting in significant loss for the landlord. 

Landlords may incur costs for loss of rental income, repairs and rebuilding, and also suffer a range of other financial and emotional pressures. Landlords rely on their property manager to regularly inspect the premises and report back on any issues they discover. And when losses occur, it’s common for the landlord to seek to hold the property manager liable by claiming they’ve breached their professional duty.

Case study

When police were called in to investigate the outbreak of a fire at a rental property, they discovered a drug lab on the premises. The tenant had occupied the property for 18 months and, throughout the tenancy, the property manager had conducted inspections every four months.

Following each inspection, a report was sent to the landlord.

The landlord sought $120,000 in damages from the agent, basing their claim on the presence of the drug lab and the ensuing fire. They had also become aware of an additional occupant residing at the premises.

The agent believed they had followed all policies and procedures, and stated they had recorded the relevant information in the inspection report.

Having the right insurance

This case study shows why professional indemnity insurance is a must. The cost of defending this type of claim can be costly. At JLT, we’ve seen them range from $20,000 to $180,000.

It’s also a timely reminder of why landlords’ insurance is important, because reimbursement of costs can be sought against a landlord’s insurance policy, thereby reducing the chance of the landlord making claim against the agent’s professional indemnity insurance policy.

For further information and to discuss your insurance needs, please contact Realcover and speak with a JLT representative on 1800 990 312 or email

The information contained in this article, which is current as at the date of publication, provides only a general overview of subjects covered. It is not intended to be taken as legal advice or advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisors regarding specific coverage issues. All insurance coverage is subject to the terms, conditions, and exclusions of the applicable individual policies


Tips for identifying illegal activities

Tenants will go to great lengths to conceal their activities, so temporary drug labs can be difficult to detect if you don't know what to look out for. Here are some tips to help you identify suspicious or illegal activity: 

  • Conduct regular and thorough inspections. Carrying out regular inspections increases the chances of detecting illegal activity. And be sure inspections are thorough. A quick walk through is not enough. Check any closed-in areas, garden sheds, garages etc.
  • Check for modifications and unusual items. Is the property in its original condition? Is there any visible damage? It’s important to identify any areas that may have been changed or altered without the landlord’s consent. Also, check for the presence of unusual items, like glass flasks, rubber tubing, chemical containers etc. Photos are an essential tool to help with any past and present condition comparison.
  • Know who the tenants are. Have the number of occupants increased or changed since the residential tenancy agreement was first signed? Unusual comings and goings may indicate illegal activity.
  • Keep detailed records. Always record all details of inspections and prepare a detailed report for the landlord, including comments, photos and recommendations.
  • Report to police. If you have any suspicion at all of illegal drug manufacturing taking place in a rental property, contact the police immediately.