If you own buy to let property, you are running a business. The property is your principal business asset and the rent you receive from your tenants represents the income stream on which your business depends.
Maintaining that stream of rental income, therefore, is critical to the survival and success of your business. Rent guarantee insurance is designed to help safeguard the income on which your business depends.
As a responsible landlord, of course, you have done your best to choose reliable tenants whom you can depend on to pay their rent when it falls due. Even with those best of tenants, however, there may be occasions when they temporarily default on the rent through no fault of their own – because they are sick or recently lost their job, for example.
You will doubtless want to give your tenants any benefit of the doubt and come to an agreement for delaying payment until they are back on their feet.
If you fail to reach such an agreement or understanding, your options are limited. Either you can seek some form of legal redress or, if you have it, you can claim on your rent guarantee insurance. It may take just a moment or two to reflect that the first of these options is likely to prove time-consuming and expensive, while a claim on a purpose-designed insurance policy is simple and straight forward.
The legal route
If you decide on legal action, the first step may be an application to the courts for an eviction notice on the grounds of arrears of rent – and you may need to demonstrate that the rent is in arrears by a minimum number of months before the courts grant your request.
To repossess your property, you must follow the rules on evictions to the letter. If you don’t, you might face prosecution for harassment of your tenant or their illegal eviction.
Even if you win an order for eviction, however, this does not automatically recover any of the rent you are due. Recovery of the rent may involve further legal proceedings.
Inevitably, those proceedings are likely to drag on – and the longer they do, the more your legal bill mounts up.
Rent guarantee insurance
Rent guarantee insurance may save you all of that time and money – and in a simple and straightforward claim, ensure that you recover the arrears of rent you are owed. Of course, you may still need to take legal action against your tenants for the repossession of your property – and that is why rent guarantee insurance typically incorporates or is closely allied to legal expenses insurance.
The benefits afforded by rent guarantee insurance, of course, vary from one provider to another. Typically, the provisions are likely to cover the following issues:
- compensation for the rent you are owed – the amount may be limited to a maximum sum each month and for a maximum number of months until you have secured repossession of your buy to let property;
- compensation for any salary or wages you may have lost through the need to attend court hearings related to the repossession of your property and recovery of the arrears of rent; and
- the legal costs involved in your application for eviction of tenants.
You might want to make sure that any rent guarantee insurance you arrange recognises all categories of tenant (including tenants and the unemployed, for example), whatever type of tenancy agreement, and whether your insurance provider also offers telephone back-up.
As with many other types of insurance, you will be expected to have taken reasonable steps to mitigate any losses under the terms of your rent guarantee insurance policy. In this case, that may typically require you from the very outset to select only those tenants from whom you have obtained a credit reference agency report and at least one satisfactory character reference.
Compensation for loss of rental income
Rent guarantee insurance is quite separate from – and in addition to – the provisions in your landlord insurance or buy to let insurance policy that provide compensation for loss of rental income following a serious insured even which leaves your let property temporarily uninhabitable and unlettable pending repairs and reinstatement.
This element of your landlord insurance policy remains completely unaffected by any rent guarantee insurance you might choose to arrange. As our product pages make clear, any let property insurance you have arranged with us continues to incorporate provisions for your loss of rental income following a major insured incident.
Rent guarantee insurance, on the other hand, ensure that you can recover rent you are owed even if the tenants have failed to pay their arrears of rent or absconded completely from the scene.