I have spent over 30 years in the insurance industry, dealing specifically with claims and it has never ceased to amaze me the number of businesses who have a penny-pinching attitude when it comes to insurance. Amongst the worst of these I have found to be landlords, because many seem to have an aversion to arranging rental property insurance to protect their investments.
As all landlords will be aware, there are certain tenants who, before they leave the property, can cause an incredible amount of damage to both the building structure and the contents. Whilst there is no legal obligation on a landlord to ensure their property, it is a simple matter of commercial prudence to consider such insurance when working out the overheads of one particular property.
I’m going to go through each of the areas where a landlord could suffer financial loss resulting from normal natural causes, right through to straightforward malicious damage caused by tenants.
I need to point out that the standard private dwelling insurance will not be sufficient for a landlord, since as far as the insurance companies concerned, a buy to let property is in fact a business and not a private dwelling.
However, the property is not considered to be a commercial one either and so a special Landlords Insurance is essential. This policy should include as a minimum natural hazards such as fire, storm, Tempest and flood. If possible, you should ensure that it is extended to include impact damage, possibly as a result of a vehicle inadvertently crashing into the property and also such risks as subsidence, always dependent upon where the property is situated.
The main issue to consider here is the actual sum insured of the policy. This does not relate to what you may consider to be the value but in fact should relate to a figure which represents the following:
It is quite likely that the resale value of the property bears no resemblance to that value placed on the three items mentioned above. Always remember that an insurance company will pay up to a maximum of the sum insured and if this is not sufficient, then you, the landlord, could very well be out of pocket.
Just in passing, any fixtures and fittings, such as sanitary ware, built-in cupboards, kitchenware all form part of the building and therefore should be included within the building insurance policy.
A landlord can never be sure as to the temperament of a tenant. So where possible, try and include Malicious Damage to the building caused by the tenant. This could relate to such items as deliberately broken glass or doors and indeed there are some insurers who will include replacement of locks which has been necessary as a direct result of malicious actions by the tenant.
This cover is only a requirement if the landlord rents out the property as a furnished one.
Once again, the sum insured should represent the replacement cost of the furniture and not its current value and to this end, you should ensure that insurance for contents is on a new for old basis to protect your interest. You really should consider including accidental damage which, although somewhat expensive, works out cheaper than having to pay for the cost of furniture accidentally damaged by a tenant.
You are not responsible for contents belonging to a tenant and you have no liability to arrange any insurance on behalf of the tenant. However although the property may be rented unfurnished, it may still include such items as curtains, carpets and possibly light fittings. This is something you should consider when arranging your insurance, even though the property is deemed to be unfurnished at the time of rent.
A tenants rent is like oxygen to a landlord; cut it off and the average landlord cannot survive as they would not have the wherewithal to meet any mortgage repayments.
Depending upon the terms and conditions of the Rental Agreement, a landlord may have a responsibility to rehouse the tenant whilst repairs are being undertaken following major damage to the property. You should consider including an element for this potential expenditure but in any event, your policy should, at all costs, cover loss of rent for any property that would become uninhabitable following a major loss such as fire or flood.
It is an unfortunate but well-known fact that there are tenants who do not always pay their rent and whilst the landlord is able to evict the tenant, the cost of following of the legal procedures can be quite prohibitive.
The best way to protect this is to include an extension on the policy which effectively guarantees the rent for a predetermined period should the tenant failed to meet their commitments. It is also better to recognise the fact that you could be involved in high legal costs to complete eviction and therefore you should incorporate an element of legal expenses within this section of the policy.
We live in a litigious world and landlords are often sued by tenants for what might seem the most ridiculous of reasons. However the fact cannot be ignored that any legal procedure is expensive to defend and whilst a tenant may be able to claim legal aid provided by the government, this is not the case for a landlord.
A faulty floorboard or a faulty light fitting can often be the cause of a claim against the landlord by a tenant. But it does not end here. There are occasion when a landlords employee is injured whilst working on a particular property or indeed, that employee causes damage to the tenants property. In either case, liability rests with the landlord.
When arranging your insurances, you should consider including liability insurance to cover losses of this nature and it is worth considering a limit of liability up to £5 million for these potential risks.
As I mentioned at the outset, there is no legal liability on a landlord to carry insurance but as you will see, it is certainly in their best interests to protect against potential losses which may well be covered by taking out the appropriate insurance. It is far better to absorb the cost of the relevant insurance into overheads rather than risk the possibility of incurring more substantial costs following a potentially insurable risk.