The End of Section 21 – Protecting Your Position: Insurance

This is part of a series of articles for landlords on preparing for the removal of the no-fault ground for possession under section 21.

Part 2. Insurance

The main effect for landlords of the withdrawal of the right to ‘no-fault’ evictions under section 21 is that it may become more difficult (or even impossible) to evict tenants.

We have been told that new regulations will allow landlords to recover possession if they want the property back to sell or live in themselves, so the main issues are likely to be with problem tenants.

Ultimately it will come down to money.

So in order to protect your position and guard against massive losses, you should ensure that your insurance is as good as it can be.

Rented property needs special landlord policies

Be aware that ordinary household insurance will NOT be sufficient.  You need a proper policy designed for landlords.

If you don’t tell your insurers that you are renting your property to tenants they will almost certainly refuse all claims.  As you will have concealed a material fact from them – and an important part of insurance is that the insured must be totally honest and upfront with his insurers.

Things you will need insurance for will include:

• Normal property insurance for damage and destruction
• Malicious damage by tenants
• Rent guarantee insurance
• Legal expenses

Some important points about insurance

You need to be very careful and make sure you know what you are getting.

DO NOT go for the cheapest policy.  That could end up being very expensive for you in the long term.

Ideally, you should read your insurance documents – I know they are deeply boring but you need to know what you are paying for.  For example, watch out for

• Exclusions – eg some policies exclude cover for certain types of people such as students, asylum seekers and those on benefit.
• You also need to watch out for things like subsidence and flooding which may have a higher excess or not be covered at all
• Any conditions – see below on this
• Your sum insured – if you are under-insured this means that all claims payouts will be reduced accordingly
• Fees – make sure you know what fees will be incurred and when

There is not a lot of point in paying for insurance if it is not going to come through for you when you need it.  So be very careful.

Ensure you know and comply with conditions

The popular view is that insurance companies will look for excuses to avoid payment.  Some are more forgiving than others, but if you do not comply with the conditions in your policy, your insurer will be absolutely in the right if they refuse to pay up.

So it is essential that you know what things you need to do and that you do them.  For example:

• Your insurer will expect you to do proper checks on tenants before they are accepted. So if you do no checks on tenants (maybe because they paid up-front in cash) and they then turn the property into a cannabis farm doing £80,000 + damage in the process – your insurer will be justified in refusing to accept the claim.
• Your insurer will expect you to do regular inspections.  Again, if your tenants are left alone for two years so you never spotted that they were using the property for a cannabis farm – your insurers will not be pleased and again are likely to refuse your claim.  Properties should be inspected at the very least every 6 months, better every 3 months (we have a kit to help with this).
• Your insurer will require you to notify them if the property is left vacant after a specified period of time (which will be set out in your policy).  Make sure you do so.

There may be other things you need to do.  Make a list of them all and pin it on the wall!  Make sure you don’t overlook them as otherwise, it could cost you dearly!

Further information

I have a little ‘mini-course’ which I developed in association with Alan Boswell Group which you can find here.  Please do!  It is free.

You may also want to read the following articles on this blog:

• The top six problems with claims on landlords insurance
• Problems with Freehold and Leasehold insurance

And listen to the following podcast:

• An interview with Leah Mayes of Insurers Alan Boswell Group

And finally

There are a lot of other things you can do to protect your position, which I will be looking at in the rest of this series.  But insurance is what you rely on in the last resort if all goes wrong.

Having good insurance can turn a total disaster into an annoyance.  Make sure you have it!