The lettings market has come a long way since the dark days of summary eviction, overcrowding, unsafe gas appliances and other hazards. We have a raft of legislation and safeguards – but that doesn’t mean nothing ever goes wrong.

‘Things’ do go wrong and when they do, it is expensive. So you might assume that landlords, aware of the risks, arrange insurances to protect their investment. Might you be right? Up to a point.

The Act of God designation on all insurance policies… means roughly that you cannot be insured for the accidents that are most likely to happen to you. Alan Coren, writer and satirist.

Kim O’Donnell, Director, Rentguard says, “There are approximately 1.75m landlords in the UK, the vast majority have landlord insurance, but a study by AXA, found that one in four have the wrong insurance (opting for standard home insurance, which is unlikely to pay out if the property was tenanted).

“Of those who purchased the wrong insurance, 43 per cent were reportedly unaware of the existence of landlord cover.”

Andy Halstead, CEO at Let Alliance, believes most have insurance. ”It is a mortgage condition to have landlord insurance, but that doesn’t cover unmortgaged properties so 10 per cent, probably more, of rented homes do not have buildings insurance.”

And that’s not all. “Rent guarantee and legal cover is seriously under purchased, fewer than 20 per cent of landlords have protection,” says Andy. That’s madness when the typical cost of rent guarantee is around £200 (outside London), if purchased through a professional letting agent – and it’s tax deductible. “If landlords understood just how valuable the rent guarantee proposition is, 90 per cent would, without doubt, purchase the protection.”

DOING THE NUMBERS

The obvious place to arrange lettings insurances is at the lettings agency, but when it is offered there is often resistance – borne either from reluctance to spend money or ‘it’s all going to be fine’ naivety.

Little thought is given to ‘what if my tenant doesn’t pay?’ but rent and legal protection policies are now very cost effective so landlords are more receptive. Greg Barnes Breckon & Breckon

We spoke to some of The Negotiator Awards winners to see how they manage the provision of insurance cover. Greg Barnes at Breckon & Breckon in Oxford, won Medium Lettings Agency of the Year. They work with Legal For Landlords and offer landlords rental guarantee as an option, depending on the service package choosen. They refer landlords directly to Legal For Landlords for all other insurances, but take-up is low – around 20 per cent.

Simon Bradbury, Director, Thomas Morris, who won four Negotiator Awards in 2016, has worked with Van Mildert for six years, for legal protection and has also started offering other policies from First2Protect, an LSLi product. “It’s early days,” says Simon, “ No takers as yet!”

Greg Tsuman, Director at Martyn Gerrard, who won two Negotiator Awards, has worked with Let Alliance for five years, including rent guarantee and legal cover with every new tenancy. General take-up of other insurances, says Greg, is only around 20 per cent.

Yasser Elkaffass at Adam Hayes in London, a double Gold winner, has been working with Homelet for seven years, he says, “We offer landlords buildings, contents, loss of rent, accidental damage and legal costs and eviction. Predominantly our landlords want loss of rent and legal cover.” Again, they don’t arrange the insurances, but do encourage landlords to protect their investment and security. Interestingly, Yasser says that their general take-up is around 20-40 per cent, but, “It is becoming more and more popular – in particular rent guarantee insurance and legal cover.”

CRITICAL COVER

Despite the surprisingly low take-up of landlord insurances, all our interviewees say insurance cover is critical for landlords.

“Insurance should be high on a landlord’s list, building and contents obviously are, but often little thought is given to ‘what if my tenant doesn’t pay’ – rent and legal protection policies are now very cost effective, so landlords are more certainly more receptive,” says Greg at Breckon and Breckon. “Less so with emergency cover as often the practicalities of the policy don’t work in harmony with the speed of service we look to provide; most landlords prefer to use local contractors and rely on our management services.“

Simon Bradbury feels so strongly about rent and legal protection, that his agency, Thomas Morris, includes it in their management fee. “It’s a ‘must have’ for landlords. “With the right protection you can be assured that rent will be paid and if your tenant decides not to vacate your home – we can instruct solicitors to prepare paperwork for the local courts to obtain a possession order. It provides genuine peace of mind for landlords.”

Greg Tsuman agrees. “It’s absolutely crucial. The most important, in my opinion is the rent guarantee. We have an exceptionally low claim rate because of the quality references that Let Alliance get for us, but on the odd occasion when a claim is unavoidable, it has saved our clients thousands of pounds.”

Yasser Elkaffass added, “We feel it is very important especially for added protection to protect landlords investments.

However, Kim O’Donnell, Director at Rentguard, believes that the most important cover is buildings and contents, “It is imperative that landlords have specialist cover in place, standard home insurance is not suitable. The most common claims with us are for damage to the building caused by escape of water (27.4 per cent) or storm damage (10.2 per cent).

“Landlord insurance covers damage caused by storm, fire, escape of water and other perils, as well as protecting the landlord’s contents, fixtures and fittings against accidental damage caused by tenants. It’s vital.”

Andy Halstead reports that their rent guarantee has a two per cent claims frequency – which sounds like a great business to be in – but, he says, “When the tenant fails to pay the rent, it takes on average, five months to obtain vacant possession, so, with lost rent and legal costs, a landlord loses £4500, on £700 per month rent. This can represent several years’ net yield.”

Andy places equal importance on buildings and contents insurances. “They protect the asset value, helping to make sure that the capital value of the property is optimised. Rent guarantee, legal protection and eviction services protect the yield and any debt arrangements that the landlord might have. Both are crucially important for the landlord get the best returns. The risk-reward equation makes appropriate insurance for both categories a ‘no brainer.”

TALES OF WOE – AND RELIEF

A managed client recently had to re-house their tenant, due to fire damage in their luxury apartment,” says Greg at Breckon & Breckon. “All repairs were covered but most importantly, they received payments for loss of rent until the work was complete and new tenant took occupation. Without adequate cover, the loss of income could have run to thousands – and it’s out of the landlord’s control.”

Greg Tsuman at Martyn Gerrard, played the Good Samaritan to one family.

“It happened around the time Lehman Brothers collapsed in 2008. A beautiful house was let to a lovely family. The husband was an investment banker; the wife at home with the children. References passed with flying colours, nobody suspected that a high net worth individual like that would find himself in distress.

“I was approached by the tenants saying that they were likely to default on the rent in about a month and that they had nowhere to move to. They had sold their property and invested the proceeds, which, in the aftermath of the credit crunch, disappeared. I can’t imagine how stressful this was. Fortunately we had Rent Guarantee, so the landlords could maintain the friendly relationship with the tenants, as they were reassured by the fact that no matter what happened they would not suffer financially. In two months, the tenants’ financial situation changed and they were able to pay all the rent before the rent guarantee claim had to be submitted. They stayed in the property for another three years and left it in immaculate condition. The landlord is still our client.”

Kim O’Donnell at Rentguard says, “A landlord who had leak from under the shower unit of a luxury property, removing the tray to access the leak he caused more damage.

“However he benefitted from the ‘trace and access’ aspect of our cover, which covers the cost of damage caused whilst locating the root cause of escape of water. Then they were unable to find matching tiles to replace those that were damaged, so we agreed to pay up to half of the cost of getting the whole bathroom retiled! “

“In another case, a truck hit a block of flats in Glasgow. Although the landlord only owned one flat within the block (not the one that was hit), the whole building was deemed structurally unsound due to the crash. His insurance helped cover the cost of the building being completely rebuilt.”

And finally, Andy Halstead at Let Alliance, paid a landlord’s contents claim totalling £6000. A problem occurred in the property making it inhabitable. The tenant needed to be relocated, spending ten days in a B & B and four weeks in serviced accommodation. With the loss of rent and cost of repair the total was £6000, but the landlord recovered every penny. The annual net yield on the property is less than £1000, so if the insurance had not been in place, the landlord would have lost six years’ profit.”

And don’t forget:

Eddie Hooker at Total Landlord Insurance, says check that the policy covers:

SUBSIDENCE
Landlords may assume that their property is unlikely to be affected, but the term ‘subsidence’ can relate to any type of structural movement – it’s very difficult to predict.

MALICIOUS DAMAGE AND THEFT BY TENANTS
Most policies include malicious damage and theft cover but not if it has been caused by the tenant or any of his guests. Think disgruntled tenants or student parties!

THERE ARE TENANTS… AND TENANTS
Many policies exclude or charge more, depending on the type of tenant occupying the property, eg: students or short-term holiday stays such as Airbnb. Check the small print!

CONTACTS

• Endsleigh www.endsleigh.co.uk
• First2protect www.first2protect.co.uk
• HomeLet www.homelet.co.uk
• Legal for Landlords Legalforlandlords.co.uk
• Let Alliance www.letalliance.co.uk
• Rentguard www.rentguard.co.uk
• Total Landlord Insurance www.totallandlordinsurance.co.uk
• VanMildert www.vanmildert.net