Loss of rent cover for landlords
Rent arrears are one of the classic problems in the relationship between a landlord and his tenants. They are a serious issue since rent paid when it falls due is essential to the success of your buy to let business.
There may be times when a temporary delay in the payment of rent occurs through no fault of the tenant who might have fallen sick or recently lost their job. The fair-minded landlord might want to adopt a flexible approach and work out with the tenant a solution to such a temporary problem.
If you are unable to resolve the issue of unpaid rent with your tenants, your options may be more limited – you may need to pursue legal remedies or seek compensation through specific, purpose-designed rent guarantee insurance.
What is rent guarantee insurance?
Rent guarantee insurance gives you the peace of mind that should your tenant fall in to rent arrears or absconds owing you outstanding monies, then this insurance will step in and compensate you.
Not only that, but landlords legal protection insurance is included as standard (you are unable to purchase rent guarantee insurance without legal protection cover from the same insurer, hence they are packaged together) with our rent guarantee insurance too. So you can enjoy all-round peace of mind that your legal costs are covered (up to £50,000 per incident), at what we believe is a very competitive price.
- cover for loss of rent up to £1,500 per month for a maximum of 6 months (or until vacant possession has been achieved);
- loss of salary or wages incurred for the time off work to attend any court or tribunal hearing as a witness or defendant (up to £100 per person per day, maximum £1,000 per claim);
- legal costs incurred in the exercise of your legal rights to evict anyone, other than tenants who have your permission to be in the property;
- a 24-Hour Helpline, so you know we are always at the end of the phone if you need help;
- cover for all tenant types; and
- cover relates to tenants on long-term leases as well as those on a minimum 6-month agreement.
Our insurance policies not only provide compensation for your loss of rental income but also generous provision for legal protection insurance – up to a maximum of £50,000 in legal costs associated with efforts to recover rental arrears from tenants who have yet to be evicted or those who have already absconded.
Playing your part
As with any type of insurance cover, rent guarantee insurance policies rely on you playing your part as the landlord in mitigating potential losses.
In that context, your selection and vetting of potential tenants – even before any tenancy agreement is signed – is critical. As part of your precautions when selecting tenants, therefore, our rent guarantee insurance policies require you to obtain for each tenant:
- a credit agency reference sourced from a reputable and recognised credit reference agency;
- at least one satisfactory and relevant written character reference – typically, character references from close family members would not be considered appropriate.
These steps are essential if you are to reduce the risks of letting to potential problem tenants. While these checks can never be an absolutely guaranteed method of avoiding issues further down the line, they can be extremely useful as a filter.
Please also note that an excess (the sum you will be expected to contribute towards the cost of any future successful claim) of one month’s unpaid rent applies to each claim made.
You might be asking yourself why you need rent guarantee insurance if the legal remedy exists of simply evicting tenants whose rent is in arrears and applying to the courts for the recovery of the money you are owed.
Evicting your tenants from your let property on the grounds of rental arrears may, indeed, be one of the options you consider.
Although we are, of course, in no position to offer legal advice, there are certain principles governing any attempt to evict your tenants for the non-payment of rent. You may soon discover that the law appears to be heavily weighted in favour of the tenant in any eviction proceedings – which you must follow to the letter of the law. As the official website warns, you may be guilty of the offences of harassment or illegal eviction if you do not follow the prescribed procedures.
Almost inevitably, the eviction process may take time – during which the rental arrears continue to mount. Although your legal action may also include an attempt to recover the arrears you are owed, success is by no means assured – and you may still be faced with what is likely to be a rapidly escalating legal bill.
In the absence of any rent guarantee insurance, meeting those legal fees and charges comes from your own pocket.
Doesn’t my regular landlord insurance cover unpaid rent?
You might also be asking yourself whether you need specialist, standalone rent guarantee insurance when your regular landlord insurance policy already makes provision for some degree of compensation for loss of rental income.
Well spotted! Most landlord insurance policies – including those arranged here at Cover4LetProperty – make provision for what is considered to be compensation for loss of rental income. But it is important to appreciate that this relates to compensation for rental income likely to be lost following a severe insured event which leaves your let premises temporarily uninhabitable – and, therefore, unlettable – pending repairs and reinstatement.
The provision for loss of rental income is typically limited – by a fixed period of time or by a prescribed amount, typically calculated as a percentage of the total sum insured under your principal landlord insurance policy.
Beware that these provisions for compensation do not cover your loss of rental income in the following circumstances:
- tenants who are withholding the payment of rent because of some dispute with you as the landlord;
- tenants who are running up rental arrears when they cannot pay the rent because they have suffered an accident or injury, are sick or pregnant, or redundant and unemployed;
- tenants who have absconded, owing arrears of rent; or
- your failure to recover unpaid rent from any deposit currently held by a company registered to safeguard tenants’ deposits – there may be circumstances in which you have attempted to recover funds for rent arrears or damage to your property from the deposit but where the licensed deposit holder has not agreed and refused to allow the deduction from the funds they are holding.
Your landlord insurance, therefore, does not offer any recourse for the recovery of rent arrears. Rent guarantee insurance, on the other hand, is a standalone product that you can buy alongside your landlord insurance. So, if a tenant slips into arrears of leaves the property, your first line of defence is likely to be rent guarantee insurance.
Addressing the problem of unpaid rent
Unpaid rent is perhaps one of the most commonly encountered problems for landlords and although there is no solution which is guaranteed to avoid it, there are certain steps you can take to help reduce the likelihood of it arising:
- put in the effort required to build and maintain an excellent relationship – based on mutual communication – with your tenants;
- deal with any late payments immediately and do not allow the situation to drift and arrears to build up; and
- be understanding but cautious about accepting verbal excuses and promises – be polite but go into writing immediately and follow the legally-defined steps for rent arrears management.
At Cover4LetProperty, our professional and friendly team is always on hand to answer any questions or queries you may have relating to your insurance policy or its terms and conditions. So please feel free to ‘phone us during office hours on 01702 606301. We are always pleased to help!