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Third Party or Property Owner's Liability:
First and foremost the landlord should be concerned
about the substantial risks now posed by third party
liabilities. In the litigious society in which we
now live, anyone operating a business, and a landlord is
certainly doing that, can easily find themselves on the
wrong side of a lawsuit which can seriously damage
your wealth, and probably your health as well! You
only need to watch day-time TV for s brief spell to see
how many law firms are touting for the business of
anyone who has the slightest inkling of a claim.
Make sure your policy includes Property Owners
Liability up to something like £5 million of cover.
It is vital that you are covered in this way against
death, injury or damage to individuals on or near your
property, for example: tenants, visitors and guests,
meter readers, postmen etc. Local authorities and
Universities will normally specify a minimum amount of
cover needed when you house housing benefit tenants or
students.
Ironically, it's this third party liability, the
greatest risk to the landlord, which is often
overlooked!
Employers Liability:
As a small time or part-time landlord you might think
that Employers' Liability is the last thing you need -
you'd be wrong! Usually buildings policies will
provide some kind of Employers' Liability cover. This
covers claims for death or injury to anyone you employ
at your property, for example you may employ, on a
casual basis only, a gardener / handyman, a property
repairer or a painter and decorator.
Buildings Cover:
The next priority, once you have taken care of third
party risks, is to protect your investment. You
need to cover your building against all insurable risks
to the full replacement cost, including the cost of
clearing the site after complete destruction and all
professional's fees.
Remember, the replacement cost is not
necessarily the same as the market value of the
property or the price you paid for it! If you under
insure your building you could fall victim to the
insurers averaging - you will not get the full amount of
any claim (see
Insurance Principles) so work out the replacement
value accurately.
You can get an accurate insurance valuation if
you go
to the Association of British Insurers (ABI) website and
their
Building Costs Calculator for home owners. Better
still and particularly in the case of unusual properties
such as old, listed, conservation area, thatched or other
specialist properties get a professional insurance
valuation done by a chartered building surveyor (see
Directory for Chartered
Surveyors) In the case of commercial property it
is always advisable to get a professional valuation.
Most insurers will index link the annual
premiums to the Retail Price Index so that you
maintain an accurate insurance value over time, but of
course this is all dependent on you getting the value
right in the first place.
It's important to remember to get permission in
writing from your mortgage lender, your
insurer and you landlord (leasehold property)
before you let your property to tenants. This is
very important as your insurance cover could be nil
and void if you fail to do this.
Perils Covered: The perils usually included in
most popular building risks policies include: Burglary
and Theft, Bursts and Water leaks, Fire, Smoke, Storm and
Flood, Subsidence, Vehicle Impact, Aircraft Damage,
Lightening, Explosion and Malicious Damage.
Loss of Rent: Most specialist landlord
policies will cover loss of rent in the event of
a major catastrophe where the building is rendered
uninhabitable. See also Rent Guarantee below.
Contents Insurance:
Unlike owner occupied properties, landlords do not
normally need full contents cover. Contents cover on
a typical owner occupied household could be anything
from £35,000 and upwards. A tenanted property would
typically involve a much lower figure as the tenant is
responsible for much of the contents. This is
particularly so when the property is let un-furnished or
partially furnished - an increasingly popular trend.
Limited Contents cover would typically be for
in the region of £10,000 to £15,000 and would cover
landlords for the loss or damage to items supplied such as
carpets, furniture, pictures, ornaments, curtains and
blinds, electrical equipment provided such as Hoovers,
TVs, light fittings, and kitchen equipment such as
fridges, washers, dryers, dishwashers etc on a new for
old basis.
Full Contents cover may be more
appropriate where the property is let on a fully
furnished basis.
Where a house is let fully furnished, especially
where this is the landlords main residence with valued
contents, then full contents cover is needed. The
landlord should also complete a full inventory of
contents, along with photographic evidence and schedule
of values. The sum insured should be adequate to cover
the replacement value of the contents in total.
Specialist Lettings: Some tenants carry higher
risks and some insurers are reluctant to cover such
risks. For example, students and Housing Benefit tenants
or properties converted for HMO (House in Multiple
Occupation) The specialist insurers we recommend will be
able to advise on the best options for insuring these
types of risk.
Emergency Assistance Insurance:
This normally covers a contractor's call out charges,
labour charges and parts and materials up to, for
example, a maximum of £600 (including VAT) for each
emergency in connection with:
- Plumbing problems
- Heating system problems
- Electrical equipment problems such as a broken
fridge or freezer
- Security of doors and windows
- Roofing problems
- Drains and sewer blockages
- Down pipes and guttering
- Electricity supply problems
- Lost keys
This type of cover can be very useful where the
landlord does not use a managing agents but lives some
distance away from the property.
Rent Guarantee Insurance:
If you have done your
tenant screening and tenant
verifying properly hopefully you won't have problems
with your tenant paying rent. However, even with the
best of intensions tenants can have difficulty paying
their rent through no fault of their own. Illness or
sudden redundancy can stick at any time. If you are
unlucky enough to get saddled with a bad tenant you
could be in for a longish period of legal battles until
you obtain possession through eviction.
Rent Guarantee insurance therefore is an excellent
and relatively inexpensive (3 to 5% of rental) way to
minimise your risk and is especially valuable for
landlords with perhaps only one property, which may be
heavily mortgaged. Landlords with a portfolio of
properties can usually stand a period of non-payment,
whereas a single property owner may not be able to
maintain mortgage payments in these circumstance,
putting the whole investment at risk.
Rent Guarantee insurance normally only obtainable
once you have comprehensively verified your tenant - see
Tenant Verify
Legal Expenses Insurance:
Do your job well as a landlord or agent 95% of all
your lettings will be trouble free -
screening tenants
carefully is the key. However, no matter how careful you
are, it is inevitable that at some time or another a
problem tenant will slip through the net. This is the
case even if, as a landlord, you use a professional
agent.
Sometime the difficulty is outside the ten's control,
sometimes it is not, but in any event the outcome is
usually the same - your are forced to spend your hard
earned cash on legal fees. You will very lucky if your
possession proceedings take anything less than 4 months
and costs are as low as £500. More likely it will take
at lease six months and your costs can be above £1,000
and that's not counting loss of rent in the meantime and
any damage the tenant has left you with.
A relatively small annual sum spent on landlord's
legal expenses insurance can cover your for up to
£50,000 worth of legal fees.
Tenant's Insurance:
In the case of
residential property it is the landlord's
responsibility to insure the building and her contents,
but this does not include the tenants' contents or
accidental damage to the landlord's property, which
would otherwise come out of the security deposit.
Many tenants just don't think about this with all the
other expenses and tasks they are involved with when
going into a rental - first month's rent up front, one
to two month's rent as deposit, an administration fee,
removing and removal expenses, buying new furniture and
fittings etc. In fact few tenants are adequately covered
in this regard and most have no cover at all.
With a good tenants insurance policy and cover
starting from as little as £5,000 upwards the tenant is
insured for, for example:
- Burglary and theft of own possessions
- Damage to the property caused by the tenant, such
as allowing the bath or shower to overflow or leaks
from the washing machine - this type of thing can
cause very expensive damage in upper floor flats where
water cascades through the building.
- Accidental or malicious damage to the landlord's
fittings, equipment and furnishings etc.
- Loss of personal possessions through the normal
building perils - fire, flood etc.
- The cover often covers personal possessions such
as mobile telephones when not at home, as would a
normal owner occupier's policy.
- Accident or injury to guests or visitors
- Replacement locks, keys and locksmith charges in
the event of lost keys.
Where the tenant has high value items such as cameras
and computers additional cover may be required and the
insurance company may stipulate additional security
measures such as stronger locks on doors and windows in
some cases.
The policy protects the tenant's security deposit
against all accidental damage to the landlord's property
for a surprisingly inexpensive premium. For example, a
serious stain on a light carpet may mean the carpet's
total replacement which would usually take the whole of
the tenant's deposit. With insurance cover the tenant's
deposit is safe.
In the case of business or commercial
property it is usual practice for the landlord to
arrange for the building insurance and to collect the
insurance premiums from the tenant.
The landlord's insurance will also
usually include public liability insurance and
employer's liability insurance, if she employs
trades people from time to time, even on a casual basis.
It is the business tenants responsibility to take out
business insurance which will include contents cover as
well as all the usual business risks. |
