If you own buy to let property, you probably know that your landlord insurance is quite different to the regular home building and contents insurance typically arranged by an owner-occupier.
What distinguishes your landlord insurance from other home insurance policies is the recognition that you are running a business – your landlord or buy to let insurance not only safeguards the physical assets of the building and its contents but also the viability of the business itself.
Business revenue
As a landlord, your business revenue comes from the rents you collect from your tenants. Your let property may be the principal business asset but the rents you collect represent the essential income stream on which your enterprise relies.
If that central business asset is seriously damaged – or even destroyed – in an event covered by the building insurance that is central to your landlord insurance policy, the premises may become temporarily uninhabitable and unlettable pending repairs and reinstatement. In that case, of course, you will also suffer the loss of the rental income your buy to let business would otherwise have received.
That is why your landlord insurance typically provides compensation for such loss of rental income – enabling you to arrange suitable, alternative accommodation for your tenants.
The principles of compensation for loss of rental income and cover for the cost of alternative accommodation
In principle, your landlord insurance is designed to cover the cost of arranging alternative accommodation for your tenant or for ensuring that you are compensated for any loss of rental income.
But there are also some important points and provisos to understand.
If your property is severely damaged by incidents covered in your landlord’s insurance policy, you may find that you have three immediate problems arising as a result:
- you may need to put your tenants into emergency accommodation while you deal with the consequences of the problem – namely the damage to your let property;
- as a result, you might also find yourself seriously out of pocket due to a loss of rental income; and
- you will be faced with the costs associated with putting the problem right.
Subject to the specific conditions of your landlord insurance policy, help and support may be available in all three areas.
Of course, the concept of reasonableness will exist.
The limits of compensation
Any alternative accommodation you arrange for your tenants, of course, needs to be in keeping with and offer a similar standard of accommodation to the let property they were occupying before the incident occurred.
Any request to your insurer for compensation for loss of rental income or cover for the cost of alternative accommodation is likely to be rejected if you seek an unreasonably expensive solution. Instead, you may need to show exactly how much you were receiving in rental income and the amount of compensation is likely to be limited to a maximum – typically based on a percentage of the total sum insured under your landlord insurance policy – and for a defined period of time.
The reality of life, of course, is that each situation is unique and presents its own – perhaps never to be repeated – circumstances.
Your insurance provider will typically work with you quickly and efficiently to try and reach a solution as fast as possible to both protect the integrity of the accommodation of your tenants and your financial interests as the policyholder.
In any situation where such claims were likely to be forthcoming, it is always a good idea to speak to your insurance provider in advance and work in partnership with them to find a solution. This is preferable to simply telling them of decisions and actions after they have already taken place.
