2016 12 Why Landlord Insurance

Why you need Landlord insurance

Becoming a property investor can be incredibly rewarding and as a landlord you will expect a financial return on renting your property. As with all investments there will be a certain amount of risk, however for property investors, the best way to safeguard potential loss is to take out Landlord insurance. This will protect you in the event of accidental or malicious damage to your property, rental loss issues that can arise from tenants defaulting or abandoning your property and also provide you with legal liability cover.

In considering effective Landlord insurance it is important to seek cover with a property management specialist. This is the only way to protect you against the laws that govern rented properties via The Residential Tenancies Act 1997. There are certain rights that tenants have and it doesn’t matter how well your property is being managed there are instances where loss is unavoidable:

  1. Notice periods – Did you know that your managing agent cannot serve a Notice to Vacate for rental arrears until the 15th day AFTER rent is due? This gives the tenant up to 14 days to pay the rent before the matter can proceed to VCAT to commence eviction proceedings. Once VCAT orders commence you could end up being a month or more in rental arrears and still have not have vacant possession of the property. After this period of time you will still need to rectify any damages or issues before re-letting the property.
  2. Property Inspections – In accordance with the ACT, your agent cannot conduct a routine inspection on a property until 90 days after a tenant has moved in. This will be the first opportunity your agent has to make sure your property is being properly looked after. After this inspection you can only request an inspection every 6 months. All inspections need to be arranged with fair notice periods to your tenant.
  3. Tenant pets – Although you may not have approved a pet to be housed at your property, tenants can and will have pets. This is not something that is easy to manage and before you know it there is damage to your property that will need to be rectified before you re-let it, for example, soiled floor coverings or damaged doors and frames. (Please note: Harrods Real Estate is all for tenants having pets, but we ask that the tenants behave responsibly and tell us about it and also take reasonable care of the landlord’s property).
  4. Legal responsibility – As a landlord you are legally responsible for providing a safe property for your tenant to reside in. If there are any safety hazards relating to the building, electrical work, piping or outdoor spaces that result in injury or death to the tenant or any third party in your property you can be held legally liable – you MUST have Legal Liability cover in place to a sum of $20 million.
  5. Periodic Tenancies – once your tenant has fulfilled their fixed term lease agreement they can opt to stay on a periodic (month to month) tenancy. You must ensure that your Landlord insurance covers periodic tenancies as some products deem there to be no tenancy in place and will not pay in the event of an abandonment or eviction.

These are just some of the issues that property investors need to be aware of. The bond can only cover certain items and in some instances is not always awarded in full to the Landlord. VCAT has to take into account the circumstances of both parties in handing down outcomes relating to tenancies. In the event your property suffers rent loss and damages the landlord is guaranteed to be out of pocket. If you cannot afford these risks, you must take out Landlord cover.

Insurance on the property is the landlord’s responsibility and it’s important to understand the level of cover you need. If your investment property is a house, you need a Building policy AND a Landlord policy. If your investment property is a unit (within an Owners Corporation) you only need a Landlord policy as the Building insurance is covered through the Owners Corporation management. If your property is in a two lot subdivision, with no active Owners Corporation, you will need Building and Landlord insurance.

To assess the best value Landlord and Building cover you must consider the terms of insurance. The best value cover will deliver the longest period of rent loss, provide high cover to contents items and include pet damage. Building cover should provide you with additional benefits that will support any repairs that need to occur at your property. You must also consider the claims excess. Some insurers will offer good length of cover however the excesses applied will negate your ability to claim on smaller damages. All of these items are crucial in lowering your financial risk.

If you need Landlord and/or Building cover for your investment property please speak to your property manager today. They have access to the best cover that is specific to the property management market.