What will Legal Expenses and Rent Guarantee insurance cover?
As a landlord, tenants defaulting on rent is always a risk - even if you have done all you can as a landlord to mitigate against it by carrying out rigorous tenant checks and references.
There are many reasons why your tenants may not pay their rent, and even the best tenants are subject to life events out of their control.
If there is one thing the Covid pandemic taught landlords and the buy to let industry, is that landlords must be prepared for the unexpected. Overnight, the sector changed, as tenants were furloughed, moved back in with parents or out of the city. Many tenants struggled to pay their rent and rent arrears rose to record levels.
The average Covid related rent arrears owed by tenants had increased to £1,270 by the end of last year, up from £900 in May, a survey of over 2,000 private renters in England and Wales found.[1] Research consultancy Dynata in research for the National Residential Landlords Association (NRLA) found the proportion of tenants in arrears built since March 2020 had almost halved to 3.7% from 7% in May, but that there are still about 430,000 private renters with Covid-related debt.
Another effect of the pandemic was that bailiff-enforced evictions were only allowed in "exceptional" circumstances as England, Wales and Scotland banned them for over a year. [2]This meant landlords could not serve possession notices on tenants in rent arrears, including, for many months, renters who had accrued rent debt prior to the March 2020 lockdown.
Notice periods were also extended, initially to six months before falling to four months in England from June 2021 (notice periods were back to pre-pandemic standards by 1 October 2021 in England) although vary in Wales, Scotland and Northern Ireland.[3]
One way to mitigate the expense and hassle of rent arrears and the expense of eviction is with Legal Expenses & Rent Guarantee insurance cover that offers landlords the reassurance they need.
Find out why Legal Expenses & Rent Guarantee insurance cover is important, what it covers and what happens if you do need to make a claim.
Why is it a good idea to take out Legal Expenses & Rent Guarantee insurance cover as a landlord?
As we enter a post-pandemic era, the sector is booming again, but for many landlords, the last two years has been a time to consider the steps they need to take to protect their investment and firm up the need to always be ready for the unexpected. While the UK may be leaving the worst of the past two years behind, there are still many reasons why your tenant may not be able to pay their rent - they may have lost their job for example, or be going through a relationship break up.
As understanding as you can be to a tenant struggling to meet their monthly rent, a landlord still needs to be able to pay the mortgage and cover their own costs. As well as the considerable cost of covering rent payments, if you were forced to issue court proceedings against your tenant then the legal fees could be substantial.
Landlord insurance can help as a safety net but the extent of what is covered in your policy can vary. If you have not considered Legal Expenses & Rent Guarantee insurance cover, read on to find why this could be a valuable addition to a landlord’s insurance policy.
What is Rent Guarantee insurance?
Even a basic insurance policy can give landlords peace of mind, but any extra cover can give you even more valuable protection.
In plain terms, Legal Expenses and Rent Guarantee insurance is designed to protect you against the risk of a tenant not paying their rent. As well as off-setting some of the cost should your tenants default on rent, it can cover legal costs incurred by you if you need to repossess the property and provide mediation and legal support throughout the process.
Rent Protection: What is insured?
- Cover for rent owed by a tenant or a guarantor under a tenancy agreement in up to a maximum amount if reported during the period of insurance.
- Pursuing a claim against the tenant to evict them.
I want to evict my tenant. Will Legal Expenses insurance cover the costs?
Eviction is an absolute last resort; no landlord wants to kick people out of their home. But sometimes circumstances mean a landlord has little or no choice.
Evictions are rare, according to government figures, 90% of tenancies are ended by the tenant. Of the tenancies ended by the landlord, the majority are terminated because of rent arrears.[4]
Evicting tenants is exhausting, time consuming and expensive. Legal expenses insurance can take some of the headache - financial and practical - out of what is a challenging time.
Legal expenses insurance provides cover for disputes relating to the recovery of rent arrears, repossession or eviction processes. You will also have legal advice on hand.
You will not usually receive rent payments through your cover once the tenant has been evicted even if you cannot find a replacement tenant.
What risks might a Legal Expenses and Rent Guarantee insurance cover?
Details will change depending on the cover you take out but Legal Expenses and Rent Guarantee insurance cover usually includes:
- A mediation adviser service
- Eviction adviser
- Rent cover (there is usually a maximum monthly rent cap and a maximum among of month’s rent payable for)
- Tenant referencing
- Legal cost that you might incur, such as evicting a tenant or pursuing unpaid rent.
- Some insurers also pay out for any repairs you may need to undertake once the property is back in your possession.
Legal expenses: What is insured
Rentguard’s Tenant Mediation and Eviction cover includes advisers’ costs to pursue legal actions for:
- Mediation with the tenant (and guarantor) to resolve breaches in the tenancy
agreement relating to the rightful occupation of the property
- Eviction proceedings against a tenant if they breech parts of tenancy agreement
How do I make a claim and what could happen when I do?
- Contact your provider as soon as possible if a tenant fails to pay the contracted monthly rent.
- Request the rent from your tenant in writing after the missed payment date. If the rent is not received in seven days, contact them again - in writing.
- If they still fail to pay you can start your claim to receive the payment for the next month’s rent (dependent on excess).
- You can continue to claim up to the capped number of months missed rent covered, which will be set out in your policy (usually five or six months).
What happens next:
If the claim is accepted and deemed appropriate, an independent mediator will be appointed by Rentguard.
If you are unable to reach an agreement with the tenant or guarantor during the mediation, or independently come to an agreement, solicitors will be appointed to act on your behalf.
Any rent arrears covered under the insurance will generally be paid within 21 days from the end of the rental month they were due.
You may be required to complete a continuation claim form before each rent claim payment is made.
What are a landlord’s responsibilities?
Insurance is dependent on a tenant’s reference. If they fail to meet the requirements, usually because the ratio of income against the rental requirement is insufficient, then a full profile reference may have to be carried out by an appointed referencing company.
Tenants should also have been credit checked, usually included in any good referencing.
You should also ensure you have the right tenancy agreement for your tenant and the property in place, have secured the tenant's deposit under one of the government's approved tenancy deposit schemes and have any approved licences for the property. If you fail to comply with any legal or landlord compliance, your claim may be invalid.
Rent guarantee insurance can come with conditions and exclusions which limit the number of missed rental payments it’s possible to claim on. Check with your insurance provider.
In the event of a claim, you or your agent must give all information requested by the insurer within five days of receiving the request for that information, and attend any court hearing if requested.
Why are tenant references so important?
There are several reasons why tenant referencing is vital, but the affordability check is one of the most important. Put simply, a tenant needs to prove they can afford to pay the rent - landlords will find it more difficult to take out Legal Expenses and Rent Guarantee insurance if the tenant fails an affordability check.
To pass the affordability check, a tenants’ gross combined annual household income must be more than 30 times the monthly rental amount. [5] For example, to rent a property at £1,000 a month, your household income must be at least £30,000 per year.
If a tenant does not meet this minimum standard, they may be asked to put up a guarantor. A guarantor will also have to meet certain criteria in order for your policy to be eligible.
Example of acceptable income include:
- Annual salary, or hourly rate based on minimum contracted hours.
- Bonus, commission or overtime if confirmed as guaranteed.
- Employee allowances, e.g. London Weighting or Car Allowance.
- Universal credit, although tenants usually have to provide the last six months’ proof of income,
- State pensions, if the annual increase letter or six months’ bank statements are provided.
How much does legal expenses and rent guarantee insurance cost?
The cost will depend on several factors, including the type of property (is a flat, house, bungalow?); the amount of rental income; how comprehensive the policy is. But the true cost of Legal Expenses & Rent Guarantee insurance cover is the level of peace of mind you receive and how much of a valuable safety net it provides you should the worse happen.
Help is at hand – get in touch with Rentguard
With vast experience of handling insurance policies for a wide range of landlords, and with relationships with some of leading insurers, Rentguard Insurance can help to simplify your insurance arrangements, protecting your property, its contents and your liabilities.
Get a quick quote online or speak to our specialist team on 0333 000 0169 today!
[1] https://www.nrla.org.uk/news/tenants-with-covid-rent-debts-see-arrears-increase
[2] https://www.gov.uk/government/publications/covid-19-and-renting-guidance-for-landlords-tenants-and-local-authorities/coronavirus-covid-19-guidance-for-landlords-and-tenants
https://gov.wales/eviction-during-coronavirus-pandemic
https://www.mygov.scot/social-rental-rights
[3] https://commonslibrary.parliament.uk/research-briefings/cbp-8867/
[4] https://researchbriefings.files.parliament.uk/documents/CBP-8658/CBP-8658.pdf
[5] https://www.rightmove.co.uk/guides/renter/preparing-to-rent/reference-check/
This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained herein. It reflects our understanding as at 01.03.2022, but you will recognise that matters concerning COVID-19 are fast changing across the world. You should not act upon information in this bulletin nor determine not to act, without first seeking specific legal and/or specialist advice. Our advice to our clients is as an insurance broker and is provided subject to specific terms and conditions, the terms of which take precedence over any representations in this document. No third party to whom this is passed can rely on it. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to fullest extent permitted by law. Should you require advice about your specific insurance arrangements or specific claim circumstances, please get in touch with your usual contact at Rentguard.
National Residential Landlords Association is an Introducer Appointed Representative of Arthur J. Gallagher Insurance Brokers Limited. Rentguard is a trading name of Arthur J. Gallagher Insurance Brokers Limited which is authorised and regulated by the Financial Conduct Authority. Registered Office: Spectrum Building, 7th Floor, 55, Blythswood Street, Glasgow, G2 7AT. Registered in Scotland. Company Number: SC108909
