If you’re offering a rent reduction to a tenant suffering hardship from COVID-19, you might be wondering whether you can claim that on your landlord insurance policy.

The coronavirus pandemic (COVID-19) has turned many people’s worlds upside down, sending stock markets tumbling, unemploymentsoaring and confining us all into our homes. Millions of Australians are suddenly finding themselves without work or with reduced hours, and are now struggling to afford to pay their rent or mortgage repayments.

While lenders are allowing those with mortgages to defer their repayments, many landlords are faced with the conundrum over what to do if their tenants can’t afford to pay their rent during the economic shutdown. Some landlords are either temporarily discounting, deferring, or even waiving rent for struggling tenants, but others have not offered assistance. Accepting a temporary rent reduction for tenants experiencing hardship is, in most cases, the right thing to do, and can be beneficial for the tenant-landlordrelationship especially considering the moratoriums placed on rental evictions by state governments. But the general consensus among insurers at the moment is that if you do offer a rent reduction to tenants, you will not be able to claim the loss of rent on your landlord insurance policy. This could be bad news for landlords who may find themselves struggling to pay their mortgage repayments with less rental income.

What is landlord insurance?

To put it simply, 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.

Landlord home and contents insurance is like a standard home and contents insurance policy, except it includes extra coverage for the additional risks that come with renting out a property.

Does landlord insurance generally cover rental income loss?

Most decent landlord insurance policies, if you have tenancy cover, should cover you from a loss of rental income, as well as:

Damage or theft by tenants or the tenants’ invited guests
Rent default
Legal expenses taking tenants to court
Liability

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.

If landlord insurance covers rental loss, what’s the deal with COVID-19?

Many landlords are finding themselves stuck between a rock and a hard place, having to choose between doing the right thing by offering a rental discount and not being covered under insurance, or not offering a rent reduction at all.

"In the current circumstances, it would be great to see insurance companies taking a more flexible approach and being more supportive of their insureds in the current environment,” Real Estate Institute of Queensland CEO Antonia Mercorella said in April.

"Many landlords are now suffering potentially their own financial detriment because of COVID-19. Further to that, they might be receiving a lot less rent from their tenants.

"I would like to see more of a focus on residential landlords because these are mum and dad investors. They are everyday Australians who are feeling the pain, and it would be great to see insurance companies offering more support.”

But according to Ms Mercorella, insurance firms are not ripping people off as they are legally within their rights to not offer cover for rental discounts under the terms of their policy.

"Morally, it is the wrong thing to do. (But) legally, under the terms of their policy, they are well within their rights to deny those claims," she told the ABC.

"But from a moral or ethical perspective, you might take a different view about their conduct."

Let’s explore how exactly doing so is allowed under the terms of a landlord insurance policy.

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, then this decrease will need to be lodged with your state’s residential tenancy Authority (RTA). 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.

As mentioned, loss of rental income is only covered if you aren’t paid what is specified in the lease and is usually only covered in certain situations, such as the death of the tenant or their abandoning of the property. So if you negotiate a rent reduction, and still aren’t paid the newly negotiated amount, then you might qualify for rental income cover, although you’d have to check with your insurer.

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