Sep 30, 2020 |

What is Landlord Insurance and why it is important?

Kate Moxham

Landlord Insurance is a type of insurance policy specifically designed to protect those who own investment properties, from the risks that come with renting it out. Just like owning a car, boat or anything else you can insure it’s always important to make sure you are covered in case anything goes wrong.

Not only can landlord insurance cover rental income loss but you may also be covered by damage or theft by tenants or their guests, legal expenses in taking tenants to court and any liability that comes with owning an investment. Your Property Manager at Celsius can arrange landlord Insurance on your behalf if you do not have current cover.

Does landlord insurance cover rental income loss?

The loss of rent, as specified by most policies, generally covers landlords for situations when they are unable to collect the full rental amount from a tenant. This might be because they refuse to pay it, abandon the property, experience financial hardship, or pass away.

The level of cover offered and the circumstances it is offered in will vary from insurer to insurer and in each different policy, so double-check the terms and conditions of a policy before signing up. You can contact your Property Manager at Celsius to get full details of your loss of income cover.

Why landlord insurance (generally) doesn’t cover COVID-19 rent reductions:

Landlord insurance policies generally aren’t covering rent reductions offered to tenants during COVID-19 because of one simple reason.

If you negotiate a rental decrease with a tenant for a certain period of time. When the agreement has been reached, the new rent being offered is the new rental agreement, and as long as the tenant pays that amount, then as per the terms of your rental agreement, you as the landlord are being paid full rent.

 

According to Terri Scheer’s terms and conditions:

A renegotiated reduction in rent is not considered a default by a tenant, so the gap between the original rent and your renegotiated rent will not be covered under your Terri Scheer policy.

However, if a tenant stops paying rent at the renegotiated amount and vacates the property, there may be a valid trigger for a claim.

 

For example:

You have two tenants whom pay you a combined $450 per week in rent. They both had their working hours reduced by 30%, so they ask you for a 30% rent reduction for the next few months until their normal hours resume.

You agree to their request, taking your new rental income to $315 per week. You lodge this request with the RTA, and your new rental agreement specifies $315 per week is to be paid for the next six months, or until your tenants resume normal work.

There’s no guarantee your claim will be successful in that second scenario, as it will depend on the terms of the policy.

 

Are general rental defaults still covered during COVID-19?

Under normal circumstances, claiming rental defaults on your insurance policy often requires the landlord to provide proof of an eviction notice to the insurer, i.e. you have to move to evict the tenant before you claim their inability or refusal to pay rent. However, this has become a bit of a grey area in COVID-19, due to the moratorium on housing evictions which will end on 28 March 2021.

However, Domain reported recently that large insurers Allianz, NRMA, CGU, SGIO and SGIC, WFI and Terri Scheer have all scrapped this requirement for landlords to claim rental defaults, as long as they are in a fixed-lease. Other insurers may well have followed suit, so this is important to check. Remember though, you can only claim if the tenant is not paying the negotiated amount, so voluntary reductions don’t count.

 

Warm regards,

Kate