NOTICE: 30/03/20 - Due to COVID-19 insurers may not offer rent protection for any new policies. Please refer to your insurer for further clarification
From fire and flooding to rental default and malicious damage, landlord insurance provides essential risk protection for both landlords and property managers.
Standard best practice
According to the REINSW Landlord Insurance Specialist’ John Trani, it’s now standard industry best practice for property managers to discuss the financial risks a new landlord may face and how to manage these risks with a comprehensive landlord insurance policy.
"Even though there’s no legal requirement for landlords to have landlord insurance, many property management teams now insist on the landlord having this level of cover before they take on a new property. It’s really now standard best practice," he says.
"A good landlord insurance policy simply minimises risk for everyone. And it ultimately makes your job easier as it covers things like loss of rent, time spent at tribunals, legal expenses and any damage caused to the rental property.
"One area that’s often overlooked is the public liability protection landlord insurance offers not only to landlords, but also property managers. If a tenant has a serious fall within a rental property, they may have grounds to make a negligence claim against the landlord. But what often happens if the landlord has no insurance, is the landlord's solicitor may try to counter sue the property management company.
"If a landlord doesn’t take out landlord insurance, property managers need to have a paper trail in place that clearly shows the insurance was recommended either at the time of signing the management agreement or during the time the property is being managed.
"From a property manager’s perspective, professional indemnity insurance may cover them in this instance. But it’s safer for everyone if the property is covered with a good landlord insurance policy, including high levels of public liability."
"A good landlord insurance policy simply minimises risk for everyone. And it ultimately makes your job easier as it covers things like loss of rent, time spent at tribunals, legal expenses and any damage caused to the rental property."
Saves you time and money
Managing a fully-insured rent roll also saves a property manager precious time when it comes to coordinating any repairs that may arise.
"If your landlord has a broken water pipe in their strata unit causing damage to the property, they may be up for thousands of dollars in repairs and loss of rent," says Trani.
"The owners corporation will normally fix the pipe and walls, but the landlord would be responsible for repainting, cleaning and replacing the carpets. Having landlord insurance in this situation makes the repair process a lot less stressful for everyone involved."
Similarly, landlord insurance will also make a property manager’s job easier in the event of a tenant defaulting on rent payments. If the landlord isn’t insured, the property manager or landlord may need to pursue outstanding money in the local court, which is both stressful and time consuming.
"If a tenant stops paying rent and the landlord isn’t insured, a property manager’s workload increases immensely," continues Trani.
"Not only does your commission stop during the default period, but if the case ends up at the local court for debt recovery and the tenants are unable to pay a lump sum immediately, you could be chasing rent for years to come.
"With landlord insurance, once the claim is made and the funds are released, you’ll receive any outstanding commission. And you can also claim for your time representing the landlord through the policy."
Not all policies are the same
Encouraging landlords to take out landlord insurance is obviously a win-win for all concerned. But according to Trani, it’s also in your best interest to make sure the landlord understands not all policies are the same.
"Landlord insurance is one of those policies where a landlord really needs to read the fine print to check the level of coverage," he says.
"When it comes to rental default, some policies will only provide cover for fixed-term leases, but not when the lease is in the continuation period. It’s therefore really important the landlord reads the product disclosure statement thoroughly to ensure the policy meets their needs."
Landlord objections and how to handle them
"If you do your job properly, I won’t need it."
No matter how well a property manager does their job, a tenant’s life circumstances can change. And no matter how financially-secure a tenant is on paper or how glowing their references are, personal circumstances can result in perfect tenants defaulting on rent. It’s also very hard to predict how a tenant will react in terms of compensation when asked to tolerate any ongoing repairs or if they injure themselves within the property.
"I’ve got building insurance and a bond."
Building insurance generally only covers damage to the building, not damage caused to the contents and other risks inherent in owning a rental property, such as loss of rent. Contents includes curtains, carpets, blinds, light fittings and more. A bond is also only four weeks’ rent, whereas the cost of malicious damage or accumulated loss of rent during eviction can often be much higher.
"The owners corporation already has insurance."
The owners corporation will have building and public liability insurance for the outside of a strata building, but not for the inside of the lots. For example, if a water pipe breaks, the strata scheme will fix the pipe, but they will not pay for any internal damage to paint work, carpets and floorboards. There may also be loss of rent in this situation, which would not be covered.