This is a question we are regularly asked at Cover4LetProperty.
We’d like to take just a few minutes of your time in confirming exactly what let property insurance is and why, in qualifying circumstances, you should regard it as obligatory.
Owner-occupiers and landlords
If you live in a property you own and nobody apart from you and your family are normally resident there, you will be considered to be an “owner-occupier” by insurance providers. Typically, guests staying over or using your property for a short period of time are not a problem. Your insurance will not be at risk, providing that there are no commercial arrangements in place in such circumstances.
However, the moment you start charging somebody for accommodation in a property you own, whether or not you live in it yourself, you have made a commercial arrangement. By law, you have become a landlord and you will also find that you have certain legal obligations.
The risks involved in offering insurance for a property vary depending upon whether or not it is owner-occupied or let out for the purposes of rental income. That means that typically there are two very separate and distinct forms of property insurance:
- owner-occupier and;
- let property insurance.
Some basic facts
We sometimes encounter some misconceptions about the qualifying circumstances under which let property insurance is required. We’d like to confirm that typically, let property insurance will be required:
- even if you are only letting out a single room in your property and occupy the rest yourself;
- if you are letting friends live in your property or part of it, in return for them paying you a rent;
- if you are letting your property out only occasionally, for example, for holiday rental purposes during the summer months;
- in situations where your lettings are infrequent and sporadic, usually being done on a short-term basis in order to raise some extra cash when needed;
- whether your property is furnished or unfurnished;
- whether or not you have a formal written tenancy agreement in place.
The basic condition to keep in mind is that if you are using your property for the generation of any sort of rental income, then you need let property insurance.
Mixing and matching
Typically, owner-occupier and landlord insurance are not interchangeable.
There are no circumstances under which you can maintain full property cover through an owner-occupier policy whilst using your property to generate rental income.
Why two forms of cover exist
The risks associated with a let property are significantly different to those associated with one which is owner-occupied.
To take just one example, if you are letting your property out you will have both your tenants and their guests in your house or flat. That significantly increases the risks of someone making a claim against you under third-party liability provisions.
Your policy needs to provide cover that is appropriate for the way you are using your property. Insurance providers have two different policies in order to be sure that you are covered as required.
The mortgage dimension
We would also recommend that you keep in mind some additional points on this subject, linked potentially to your mortgage:
- if you have a mortgage on your property then the lender will typically have advanced the funds based upon the understanding that the property concerned is either owner-occupied or let (i.e. a buy-to-let mortgage). If you have an owner-occupier mortgage and start using the property for letting purposes, you may be in breach of your mortgage contract;
- even if you have a correct type of mortgage, such as a buy-to-let advance, your loan agreement will typically oblige you to maintain full and appropriate insurance cover on it at all times – meaning let property cover.
These are both powerful reasons why you should ensure you have landlord insurance when it is required.