Insure youself against common letting problems
Whatever reasons lie behind your role as a landlord, presumably your let property is an investment that is intended to turn a profit. However, the letting experience is rife with potential pitfalls that can hurt you and your investment, so it pays to be aware of what could go wrong so you can prevent, or at least protect yourself against, the most common pitfalls that could arise.
Certainly, you should familiarise yourself with the legal requirements of being a landlord. With at least seventy sets of regulations and fifty Acts of Parliament regarding the private letting sector, and new laws regularly in the works, there are many rules to stay abreast of to ensure your property is let legally. If you need advice or are daunted by the prospect of navigating the letting market alone, utilise the help that is available. Options include joining a landlords association or researching an association’s website or landlord’s chat forum for answers, and seeking the help of a letting agent or property manager.
Another source for advice is a reputable insurer who specialises in insurance for let properties. A costly mistake many landlords make is to assume standard household insurance is sufficient coverage for a let property, thus leading to claims being denied because the property is in fact wrongly or under insured, so it is important that you ensure you have the right coverage in place.
When you protect your property with landlords property insurance, not only is the building covered against the usual insurable events you would expect from standard home insurance, it also includes a variety of useful options specifically designed to protect landlords from the risks involved with letting. When deciding which insurance options are best for you, it is wise to consider the pitfalls you could face and how having the correct insurance will benefit you. Common problems include:
Damage to the property – Tenants are unlikely to treat a rented home with the level of care they would if they actually owned it. Natural wear and tear, dilapidation and breakages are common problems, and it falls upon landlords to ensure their property is well maintained and to pay for repairs to the property and the repair or replacement of damaged items that come with the let property.
Steps can at least be taken to minimise the potential for damage. Conducting a thorough background check on prospective tenants, including references from previous landlords, should help you avoid tenants that are likely to wilfully or maliciously damage your property. Decorating the property with hard wearing materials, such as washable paint on the walls, stain resistant, dark coloured carpets and durable tiles, will also help, as will ensuring working smoke alarms are installed and fitting a fire extinguisher and fire blanket in the kitchen. If possible, arrange in advance with your tenants to view the property approximately every six months, so you can check if any problems need fixing and ensure everything is in good condition. If you know any of the neighbours, arrange with them to keep an eye on the property and report back to you if they notice any suspicious activity.
However, even the best preventative measures are no guarantee that your property will remain in good condition. Items in disrepair may go unreported until the problem grows and becomes extremely costly to repair, tenants may host large parties and, whether or not the lease allows it, they may smoke in the house, have pets or carry out damaging decorating. In extreme cases, they could even turn your property into a cannabis factory. The point is, you never know what activities your tenants will engage in. Additionally there is the possibility of damage not directly caused by tenants, such as faulty wiring sparking a fire or a burst pipe or upstairs neighbour’s overflowing bathtub resulting in water damage. The best protection for you and your wallet is to include contents coverage with your building coverage, since that could save you from paying a hefty sum out of pocket to repair or replace damaged or stolen fixtures, furnishings, fittings and appliances that belong to you rather than the tenant.
Rent arrears – Late rent payment is a common problem landlords face. Including credit and employment checks in the background check of prospective tenants will let you know if they are financially solvent, but that is no guarantee of their reliability or the fact that they will remain employed. If rent is paid late or not at all, not only will you lose the money you rely upon receiving to make ends meet, you could also face a long and expensive battle to evict the tenants.
Requiring tenants to provide a homeowner they know to act as a guarantor is one measure landlords can take to reduce the risk of rent arrears, however, the most effective protection is to obtain rent guarantee insurance. This type of coverage ensures you will not only continue to receive payments in the rental amount, should your tenant default on paying, but it can also include legal expenses coverage, which will pay your legal costs for any subsequent court action or eviction proceedings.
Rental voids – There will be periods when your property sits empty, when tenants move out and new ones need to be found, which will impact you particularly hard if you are financially dependant on receiving a regular rental income.
Although it is impossible to accurately predict how many weeks out of the year your property could be empty, if you are planning to buy a property to let you can maximise the rental potential by looking at properties in areas that are more likely to attract renters. You may also find it helpful to consult with local letting agents, since they should be able to advise you on the likelihood of attracting tenants based on the area and housing type you are considering. For added security and peace of mind, obtain rent guarantee insurance that will also cover rental voids by compensating you for loss of rental income when your property is between tenants.
Liability risk – Landlords are legally obligated to provide a safe, habitable and harassment-free living environment for their tenants, and as a result are particularly vulnerable to issues of liability if tenants decide to take legal action.
To minimise the risk of legal action against you, it is important to maintain the property, ensure gas and electric safety regulations are up to code and to make repairs immediately when notified of a problem that needs fixing. Avoid behaviour that could constitute as harassment, and if you or the tenant has initiated legal action, follow the correct procedures and refrain from actions that will work in your disfavour with the courts. Follow the Tenancy Deposit Scheme rules, so tenants cannot dispute you for non-compliance with the law, and ensure a detailed tenancy agreement has been signed by all parties before any tenants move in.
For your own protection, take out legal expenses insurance, so if you are ever forced to take action against your tenants or they take action against you, your legal costs, including any damages amounts awarded, will be compensated.
Ending tenancies – With any luck, when your tenants move out it will be of their own volition and after they have given adequate notice of their departure. You will then have the opportunity to check the property before they leave to ensure it is in reasonable condition. Before the tenancy began you should have completed a full inventory, which you can refer to when checking the property at the end of a tenancy, and if anything is not as it should be you can reasonable deduct money from the tenant’s deposit.
However if you are not so lucky, tenants could abscond without notice, with back rent due and with the property in total disrepair. If you are unfortunate enough to experience such a situation, having rent guarantee and contents insurance will help you to recoup some of your losses, so you are not faced with an insurmountable financial catastrophe.
Ladaniel McNaughton is a professional landlord and home improvement expert who has written prolifically on the subjects. His musing can be seen at Landlords Insurance, and uk holiday homes insurance
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