What does rent guarantee insurance cover?

Posted: 5th Jun 2018

As a landlord, your tenants are critically important, as they’re the lifeblood of your business.

The vast majority of tenant/landlord relationships work well but there are exceptions.

Rent arrears

Unfortunately, a classic symptom of a problem tenant relationship is rent arrears.

These can arise in many situations and in fairness, not all of those relate to disputes and ill-feeling. For example, some tenants may fall into arrears because they have had the misfortune to lose their job and income.

The bottom line for the landlord though is the same – arrears. That’s where rent guarantee insurance may be able to help.

Your options

Cover4LetProperty aren’t solicitors and we cannot offer qualified legal advice.

In general terms though, the law requires the landlord to follow a strictly defined route for dealing with the problem. That typically includes formal notices, waiting periods and various other formalities before eviction proceedings can commence. Once formal eviction starts, very often the legal bills start to arrive too.

Then there is the added complication of tenants who flee leaving substantial unpaid rent arrears.

In both the above scenarios, your options may seem limited – as in fact they are. The difficulty for landlords is that the law is designed to protect the interests of the tenant whilst giving the landlord some rights such as, ultimately, eviction.

However, proceedings to ensure that balance sometimes go forward very slowly, particularly so in cases where your tenants are contesting the eviction notice. As time passes, those rent arrears may continue to mount up.

You may have the option of taking legal recovery action to try and get the arrears from the tenants but even if you win your case, there is no guarantee they will have the money to pay you.   It’s also worth noting that in situations where you have recovered all or part of the arrears, that sum might be more than offset by the legal costs you’ve incurred in your case.

Some landlords feel this is a hopeless “lose/lose situation”, which is why rent guarantee insurance exists.

Rent guarantee cover

This type of policy can typically pay up to £1,500 per month for up to six months (or until vacant possession has been obtained) by way of cover for rent arrears. It also automatically includes legal protection cover.

That might be very useful and it also covers things such as:

  • a loss of salary/wages due to time-off-work required to attend court or tribunal hearings (up to set limits);
  • the legal costs incurred in exercising your legal right to evict anyone unless they have your permission to be there;
  • a 24 hour helpline;
  • all tenant types covered;
  • both long-term leaseholders and those on a minimum 6-month agreement are included.

Your responsibilities

Of course, providers of rent guarantee insurance require that landlords take sensible steps to protect their own financial interests before taking out a tenancy agreement.

That means before a claim will be accepted, typically you will need to show that you took at least one credit reference check against the tenants at the outset (from a recognised credit agency) and obtained a satisfactory reference for each tenant signed by an impartial and authoritative source.

These should be seen as common-sense requirements that should be adopted by all landlords for all potential new tenants.