Landlord insurance - what it covers and why you need it - can never be under-emphasised. Here’s a reminder for landlords of residential property in Scotland.
1. Tenanted property insurance
This provides landlords with cover in a range of scenarios. Flood, fire and theft are three of the most commonly anticipated, but there are others too. For example, accidental damage can be a major overhead for some landlords, especially those with student lets or with properties housing tenants keen on enjoying frequent parties. Of course, to some extent, a prudent landlord or their agent will have factored the potential for a certain level of wear and damage into the rent and deposit. However, some damage goes beyond regular wear and tear - for which a tenant cannot be held liable - and beyond even the scope of recouping the cost of remedying it via the deposit. Without an appropriate insurance policy to fill the gap, a landlord might struggle to remedy any damage. This could affect their ability to re-let or sell the property. Badly damaged homes mean lower (or no) rents and lower than expected sold property prices.
Insurance companies recognise that different types of tenants present differing levels of potential risk. As a result, a landlord might expect policy providers to distinguish between:
- Properties let to a local council
- Properties let to a housing association
- Tenants who are asylum seekers
- Tenants in receipt of benefits
- Student tenants
- A short-term lease
- Professional tenants
- Retired tenants
Although this list is not intended to be exclusive, it is intended to highlight the importance of notifying your insurance company if you change the type of tenant to whom you rent your property. Failure to do so could impact on your provider’s obligation to pay out in the event of a claim
2. Contents only insurance
Although unlikely to be taken out by a landlord, as a conscientious landlord you may wish to remind your tenants that they need to obtain appropriate insurance to cover their own belongings. You will need to ensure your landlord’s insurance policy covers fixtures and fittings, such as fitted kitchens and bathroom units and carpets, as well as any contents you provide for your tenant’s use.
3. Unoccupied property insurance
Void periods can be the bane of many landlords’ lives. However, the right insurance policy can go a long way towards ameliorating the consequences. Again, an insurance company is likely to distinguish between the various reasons why a property is empty. For example, a property might be:
- Awaiting a sale
- Awaiting new tenants
- Awaiting a probate settlement
- Waiting for the landlord to move in (i.e. shortly to be owner-occupied)
4. Holiday home insurance
With more landlords than ever turning to the holiday industry to let their properties, appropriate insurance is a vital safeguard. Even renting through sites such as Airbnb cannot guarantee the level of vetting of tenants that is customary in the residential lettings sector. In a nutshell: if you are a holiday landlord, you have little idea what your holiday tenant might get up to and - unless you happen to live within earshot - less hope of curtailing any troublesome behaviour.
Whatever type of insurance package you are looking for, make sure it includes liability insurance. Whether your property is occupied or not, you are potentially at risk from claims made by tenants, visitors to the property or the general public. Typical premiums offer cover for between £2 million and £10 million. These figures are a neat illustration of how much money is potentially at stake should someone bring a claim against you.
Where to find the best policies
It’s worth remembering that the best policy is not always the cheapest. A good policy provides peace of mind that, should it be needed, it will pay out. However, that’s certainly not to say that you shouldn’t look for the most competitive quote. You should - but only once you know what you need your policy to include. A specialist insurance broker could help, although you might have to pay for their services. Alternatively, online comparison sites can help you identify the best policy for you. And, once you have a policy in place, don’t forget to reassess it regularly, both in terms of its suitability and its competitiveness. In particular, don’t automatically allow the policy to renew annually without (a) checking what competitor insurance providers can offer and (b) asking your existing provider if they can match or improve on a better quote from elsewhere.
As a landlord, it’s important to consider the impact of Covid-19 on your rental properties and your legal obligations to your tenants and others who may need to access the buildings. This is the case even if, for example, you have an untenanted property that you are waiting to sell when the market picks up and sold property prices rise. The Scottish government has published helpful advice, which can be accessed via the Shelter Scotland website. Some elements of this advice have direct relevance to potential insurance claims. For example:
-Where a tenant refuses to leave at the end of their notice period
-What constitutes an illegal eviction
-How to conduct property viewings and moves without breaching current health and safety guidelines or putting anyone - whether potential tenant, existing tenant, estate agent or member of the public - at risk
-How to advise tenants in an HMO with shared common areas to self-isolate.
Abiding by pre-existing measures, such as gas and electrical safety standards (which may be essential to ensure that an insurance policy is not void), may be much more difficult during the pandemic. Again, Shelter Scotland is a very useful source of guidance for landlords struggling with this issue. It also provides some comfort, stating that it is encouraging local councils and enforcement agencies to take a “pragmatic, common-sense approach to enforcement” in the present time. However, landlords should be very clear that this does not offer them an opt-out from adherence to basic health and safety measures or ensuring that necessary repairs are carried out.
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