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
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.
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
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.
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
- Rent default
- Legal expenses taking tenants to court
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.
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
"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
"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.
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
automatically manage each room as a separate tenancy ledger.
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Thursday, 18 June 2020