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Small print, big problem: Insurance loopholes identified

Making sure you have adequate insurance is a vital step in being a responsible landlord. There are so many packages available it can be tricky knowing which one is best for you.

Once you have narrowed down the product, it can be tempting just to hand over your payment card and sign on the dotted line, but don’t rush into things - this is not the time to skim read over the small print…

Making sure you fully understand your insurance, and mortgage, products may seem simple, however there are a few common hiccups that could lead to a bump in the road if you are not aware of them.


Types of tenants

If you have let property in previous years, you may be finding that the market is not as buoyant as it has been in previous years. Whether this is down to political uncertainty, the promise of hundreds of thousands of new homes due to flood the market any day now, or any number of unknown reasons, this quieting down of the private rental market has lead to many landlords looking to expand their marketing to take in different types of tenants that they may not have considered before.

You may previously have let to families, and now are considering exploring students, sharers or tenants in receipt of housing benefits.

Before you consider changing you marketing strategy though, take a look at your mortgage documentation. Some buy-to-let lenders and insurance providers, are very strict with regards to whether you are allowed to make your property available for social housing, and may require you to apply for permission, with no guarantee of the request being accepted. There could be a charge for this, and the interest rate on your mortgage may be increased.

Even if you have no immediate plans to let to tenants who receive benefits, it is worth familiarising yourself with your mortgage and insurance’s requirements with regards to this issue. Your tenant’s situation can change at any time and your tenant may find themselves having to apply for benefits once they are living in your property. If this is the case, you need to understand the implications this could have on your situation. Whilst it is unlikely that you would evict your tenant if they fell on hard times, you may find that you must make changes to your tenancy agreement (such as the inclusion of a break clause) to reflect your tenant’s new situation.


Subletting

When you take on a tenant you undertake all the legal requirements expected of you as a legally compliant landlord, right? Fulfilling your requirements, having a good overview of your tenants and understanding the process is a key to being a good landlord, and it is understandable that your insurance provider is keen to make sure that this high standard is maintained.

However, how does it work when your tenant is subletting your property? Can you be sure that they are taking the same level of care that you are with regards to checking and vetting the tenants that they bring into your property? Probably not.

It is unlikely that your insurance will be as trusting either. It is possible that your insurance will be invalid if there is any damage caused by a tenant who is subletting, or if anything is stolen from your property.

If you are planning on looking into short term lets, such as Airbnb during a void period, you might want to look a little closer at your policy too. Due to the transient nature of such tenancies, it is unlikely that your standard landlord policy will cover such agreements.


Watertight tenancy agreements

When you and your tenant sign a tenancy agreement, you would assume that everyone would keep to their side of the bargain. After all, it is a legally binding document. However, should there be any slips in your tenant keeping to the terms of the agreement, you could be leaving yourself exposed should you need to call on your insurance.

Most tenancy agreements contain a clause about not leaving the property unoccupied for long periods of time, and if there are plans for a long period of absence (a hospital stay or long holiday for example) that the tenant has to make you, as the landlord, aware. If your tenant has left the property unoccupied and there has been an incident which means that you have had to invoke your insurance, you could find yourself with a potential issue – most insurances set a limit of 30 days during which a property can be left unoccupied.

Also, remember the details you identified to your insurers about your property when you took out your insurance. For example, if you noted that the property is protected by an alarm, they will have taken this into account when providing you with your quote. If your tenant has failed to set this alarm there is a possibility that their actions may invalidate your insurance should you need to call upon it in the act of a break in.


Victim of crime

Whilst nobody aims to be the victim of crime, more and more the private rental sector is being targeted by very specific types of criminal activity.

Organised crime gangs are using rented properties in to house criminal activity such as the the production of cannabis, human trafficking or prostitution, and should this take place in your property it is possible that your insurance may not cover you for the damages caused. Many insurance policies contain an ‘illegal activities clause’ which could invalidate the policy. Also, your property would also have been being used for commercial purpose, which contravenes landlord policies.

There are some hefty financial risks too. With all criminal acts, it is unlikely that the person you have on the tenancy agreement is going to be the person living in your property. This means that you will not have up-to-date right to rent checks on the residents of the property, with is a legal requirement. You would stand to be fined up to £3,000 per tenant, and there is now a prison sentence of up to five years for repeat offenders.


Failing to comply with landlord legislation

As a landlord there are a few vital requirements that you have to make sure you tick off in order to make sure the tenancy is legal. These include carrying out an annual gas safety check (and providing the certificate to your tenant), making sure you have all relevant licenses for your property type (HMO etc), protecting your tenant’s deposit in one of the three government backed schemes and serving the with prescribed information within 28 days, and providing a copy of the EPC and How to rent book at the start of the tenancy, along with the tenancy agreement.

If you fail to complete any of your legally requirements, such as failing to carry out a gas safety check or example, you would not be meeting the required legislation as a landlord, and as such your insurance may be invalid.

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