Protection against tenants from hell and other disasters
15 September 2001
By Simon Hoyle
Policies are available for landlords
in most areas who want to insure against damage to property or loss of rental income.
It's every landlord's worst nightmare: a property left in
such a state by tenants that it can't be let out again without substantial and costly
repairs. As vacancy rates rise, it's becoming a renter's market, and it's getting tougher
for landlords to find good tenants. Tenants can afford to be choosy - they're not going to
rent a property that's in poor condition.
When a property is damaged maliciously by tenants, the
landlord is left out of pocket not only for the repair work, but loss of rental income.
But that's not the only potential problem a landlord faces.
Tenants sometimes disappear partway through a lease,
leaving the landlord out-of pocket until the property can be retenanted. And some tenants
simply default on rent payments but remain in the property. The process of removing them
can be time-consuming and costly.
Terri Scheer, managing director of the Kent Town, South
Australia-based Terri Scheer Insurance Brokers, says malicious damage, default on payments
and tenants simply absconding are more common occurrences than many landlords imagine, and
they are not problems confined to the lower end of the rental market.
In one case, a fully-furnished executive apartment was
cleaned out. The value of the goods stolen was $10,000. The tenant has moved overseas and
cannot be traced.
However, the most common cause for claims by landlords is
loss of rent. "We know from statistics that 96 per cent of claims will be for loss of
rent," Scheer says.
"Two per cent are contents claims, such as water
damage. We have the odd fire, and theft claim and fusion claim."
The other 2 per cent of claims are for malicious damage.
The number of claims for loss of rent has been
escalating, Scheer says. There's been a 45 per cent rise in the number of claims for pure
default. Claims for malicious damage are up as well, by as much as 25 per cent.
Malicious damage claims tend to be expensive - the
largest to date under the Landlord Preferred Policy marketed by Scheer has been $14,000 -
and potentially have a long-term effect on the rentability of the property.
Malicious damage can involve murder and suicide, Scheer
says. In one example, a young woman was murdered in her bedroom. The publicity surrounding
the case and the resultant stigma attached to the property meant it could not be
retenanted for a considerable period.
Scheer says one of the reasons claims are escalating is
that more renters are taking advantage of the Government's $14,000 First Home Owners
Scheme.
`A good tenant is hard to come by these days,"
Scheer says. "If someone is able to get $14,000 from the Government to buy a new
home, if they have any ability to plan for the future they are going to take advantage of
that - and they are the good renters."
She says that as vacancy rates rise, "many landlords
and agents are more reluctant to act against a tenant that defaults".
The industry is seeing more of what are described as
"professional tenants" people who "know the legislation, know how long it
takes to get a court hearing, and who will hand over the property two days before the
hearing".
It can take anything upwards of about six weeks from the
time a tenant defaults until the matter is heard in court. And there's no guarantee that
the court will find in the landlord's favour, Scheer says.
Pricing for landlord policies varies from State to State,
depending on the claims experience in that particular State, but it's not linked to the
property rental rate. Scheer says that in Darwin, for example, a Landlord Preferred Policy
premium is $210 a year, while in Brisbane and northern NSW it's $217 (the policy is not
yet available in metropolitan Sydney). In Melbourne the premium is $205, in Adelaide it's
$185 and in Perth it's $187.
Provided a tenant is paying no more than $1,000 a week in
rent (the amount can be set higher by special arrangement with the underwriter), the
policy will cover a landlord for loss or damage to the building and its contents, and
events that lead to a loss of rent, including:
- A property being left untenantable due to malicious damage
to the building or contents (up to 52 weeks' rent).
- Tenants absconding (up to six weeks' rent).
- Tenants defaulting on rental payments, if the tenant is
subsequently evicted by court order (up to 15 weeks' rent cover).
- A landlord being prevented from accessing the property (up
to six weeks' rent).
- A tenant failing to give vacant possession of a property
(up to 28 weeks' rent).
- The death of a tenant under a sole tenancy (up to 15
weeks' rent).
- A court awarding a tenant a release from lease obligations
due to hardship (up to four weeks' rent).
Reproduced from The Australian Financial Review,
15-16 September 2001
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