With a steady increase in reports of rising rent defaults, many landlords look to protect their rental income against non-paying tenants with a Landlords Rent Guarantee.
The types of Landlord Rent Guarantees on offer vary, as does the small print. Let’s have a look at some of the benefits Landlord Rent Guarantees offer, check out policies that include legal costs associated with the eviction of your defaulting tenant, and the what to consider when purchasing your policy.
How Landlord Rent Guarantee Works
In theory, landlords rent guarantee insurance is a landlord’s most practical form of insurance. As unfortunate as it is realistic, as a landlord you are more likely to find yourself landed with a non-paying tenant, than for example having the roof blown off your property. However, that is what insurance is for – to protect you against unpredictable future events and costs.
With landlord rent guarantee insurance if your tenant fails to pay their rent, the insurer will pay the rental amount due to you instead. The outstanding rent debt is then recovered (if possible) directly by the insurance company or its subsidiary from the tenant.
As a landlord you may prefer to allow the tenant some extra time to make the payment in the first instance of late rent, however you are not obliged to do so. With UK rents now averaging above £700 per calendar month, it is clear to see why a 12 month rent guarantee for around £120 is a very sensible piece of insurance for a landlord to have.
Landlord Rent Guarantees with Legal Costs
Most landlord insurance providers are now also offering a combined rent guarantee that includes legal expenses. This makes sense, since a non-paying tenant is usually a tenant heading for an eviction – another costly and inconvenient process for a landlord to have to go through. Having a rent guarantee that also covers your legal costs associated with eviction will give you peace of mind that if you do have to go down the tenant eviction route, you will not be out of pocket at the end of it. Most policies that include legal expenses cover them until the tenant is evicted even if the actual process is not over until after the policy ends, as the tenant eviction process can take around 8 weeks.
In addition to that, most policies will pay 50% of the rent for up to 3 months after eviction whilst you find a new tenant. However, if policy ends during the eviction process you will of course have to renew the policy in order to receive this and your monthly rental payments.
Checking the Small Print
First of all, it is near impossible to take out a rent guarantee (or for it to be valid) without the tenant passing a full tenant reference check. In some cases, this must be done by the same company you are getting your rent guarantee from. However, most landlords have the tenant references as a matter of course, so there should be no additional costs.
Some insurance companies won’t allow claims within the first three months of the policy, and generally landlords won’t be able to claim if they are in the last month of the policy and have not renewed it.
Most insurance providers will allow you to back date a claim if you have kept a record of the overdue rent. However this does vary greatly between insurance providers and some will not pay out at all if you do not notify them of a late payment within the first 30 days.
It is also worth considering that a 6 month policy could leave landlords more vulnerable to legal costs than a 12 month policy, as the insurance provider is under no obligation to allow you to renew your insurance. This means that if there is a rent claim in process, the company may decide not to renew your policy, which could make you unable to claim legal costs in the future. And the way that a lot of rent guarantee policies are set up means that the odds are stacked in favour of the insurance company.
Despite the small print and the sometimes tricky hoops to navigate though, the protection provided by a rent guarantee insurance policy to a landlord by covering the costs of unpaid rent is a great way to protect your income and ensure you are covered in case of tenant eviction.