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SmartBond shifts tenants to new place

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  • SmartBond shifts tenants to new place

    SmartBond shifts tenants to new place
    By GREG NINNESS - Sunday Star Times Last updated 05:00 04/07/2010

    The Press
    FLAT OUT: Tenants could avoid paying bond through SmartBond insurance.
    TENANCY BONDS may become a thing of the past – thanks to a new type of insurance policy being launched this week.
    Called SmartBond, the policy is an alternative to the bond system operated by the Department of Building and Housing, under which tenants pay a bond of up to four weeks' rent when they move into a property.
    Under the current bond system, landlords can be reimbursed from a tenant's bond for unpaid rent or damage caused by a tenant, when a tenancy is terminated.
    Under the SmartBond scheme, tenants would no longer be required to pay a bond.
    Instead, the landlord would take out a SmartBond insurance policy, which would provide cover for damage to the property or unpaid rent at the end of a tenancy, with a maximum payout equivalent to five weeks' rent.
    The landlord would pay a premium equivalent to 2% of the weekly rent, which could be added to the tenant's rent.
    The SmartBond scheme has been launched by NZ Guarantee Ltd, a company set up by Tauranga-based insurance broker Barry Gordon. The insurance policies are underwritten by Southsure Assurance, a subsidiary of SBS Bank (Southland Building Society).
    Gordon said the scheme originated in Switzerland, where insurance-based arrangements had now almost entirely replaced traditional tenant bonds. Similar insurance bond policies were popular in the UK and Belgium.
    However, the policy had to be written specifically for the New Zealand market and, in particular, it had to comply with the requirements of the Residential Tenancies Act. The main advantage to tenants is that they would no longer have to find the equivalent of up to four weeks' rent, which would be tied up in a bond.
    Instead, it is likely that landlords would pass the cost of the SmartBond premium on to their tenants, so they would end up paying that.
    According to the REINZ, the national median rent for a three-bedroom home was $340 a week in May.
    Under the current bond scheme, a tenant could be required to pay up to four weeks' rent (the maximum amount of bond that landlords can legally require) before they moved into a property. At the median rent of $340, that would be $1360.
    Under the SmartBond system, tenants would not have to set aside that money for a bond.
    Instead the landlord would pay a premium of $6.80 a week, which would likely be passed on to the tenant.
    However, there is a potential downside for tenants. Although paying a bond can mean finding a lot of money to start with, the bond remained the tenant's property and is refunded to them when the tenancy ends, unless the landlord makes a claim against it for unpaid rent or damage to the property.
    However, if the tenant ends up paying the SmartBond premium, that is purely a cost which the tenant is unable to recover. So, over time, the tenant would be worse off.
    For landlords, the advantage of Smartbond is that it provides cover equivalent to up to five weeks' rent, whereas a bond can only be for a maximum of four weeks, and not charging a bond may make it easier to find a tenant and rent out a property more quickly.
    Gordon said the system would be internet-based and landlords would apply for a policy online via the SmartBond website.
    The application would include details of the tenants that would be covered by the policy and SmartBond would run a series of checks to see if they had been the subject of Tenancy Tribunal orders, or struck difficulties, such as bankruptcy. Once the policy was issued, it would remain in force for a minimum of six months. If the landlord had reason to make a claim when the tenancy was terminated, the landlord would apply to the Tenancy Tribunal to recover their costs, in the normal way.
    If the Tribunal found in the landlord's favour, SmartBond would pay out, up to the maximum five weeks' rent of cover.
    SmartBond would then pursue the tenant to try to recover its costs.
    Gordon said SmartBond would eventually build up a database of tenants who had caused landlords problems and this blacklist could be made available to prospective landlords.
    Conversely, good tenants would be able to be pre-approved for the scheme, which may help them when dealing with landlords about renting a property.
    Landlords would also be able to reward existing good tenants by switching to SmartBond, which would allow the tenant to have their bond refunded without having to terminate the tenancy, freeing up that cash.
    Gordon said the company had used a market research company to test the scheme on 500 tenants and landlords, receiving a very favourable response.
    Initially, the company would be promoting it to property managers, such as real estate agencies.
    Martin Dunn, the director of real estate agency City Sales, which manages one of the largest investment apartment portfolios in the country, said he could see the appeal of the scheme.
    Dunn said that, in addition to four weeks' rent for the bond, most tenants had to pay the first two weeks' rent in advance when they signed up for a property, plus the letting agency's fee.
    "That's a lot of money to a tenant." Before property managers would recommend the service to their investor clients, they would want to be sure that the scheme was financially sound.
    Southsure Assurance has a BBB (good) credit rating.

    TENANCY BONDS may become a thing of the past – thanks to a new type of insurance policy being launched this week.
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

  • #2
    Sounds like a crap idea to me. If the tenants dont have to worry as their bond isn't on the line, they will lave the house in a mess, even if they do pay the last few weeks rent which they probably wont.

    Holding the bond over their heads is the only thing landlords have.


    • #3
      I agree, theres no financial commitment being made by the tenant- its a walk in walk away type situation.
      Fronting up with a bond weeds out those unlikely to be able to cover the rent in future.

      Like any insurance policy, I would closely examine the fine print. It may not be as simple as just getting a tribunal order, if there is any other conditon that must be met in addition to a TT order, then that becomes an out for the insurance company, ie bond never existed !
      Last edited by Keithw; 04-07-2010, 01:29 PM.


      • #4
        Lodged bonds earn interest and its that interest that pays the operation of the Tenancy Tribunal. Unless this lot are going to pay for tenancy hearings they are having a free ride at the expense of those that lodge bonds.


        • #5
          I have heard that for a LL to have no bond number is bad news as the LL can't make an application to the TT.

          Not the same for the tenant though.

          For my kids, when they were renting in one of my houses, I charged $1.70 for bond. Got a bond number and didn't have problems. BUT. What if it's true that a LL can't apply if they haven't taken and lodged a bond?
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          • #6
            I wonder if us LL's can have a bob both ways....take a bond and privately insure? Wonder if this would be cheaper than other ins policies?

            Just a thought.


            • #7
              Originally posted by Keys View Post
              For my kids, when they were renting in one of my houses, I charged $1.70 for bond.
              Did they get it back when they moved out?

              Sounds like this raises more issues than it solves. Would be interesting to hear their view on our concerns. (properytalk already rates higher for "smartbond" on Google than their own website so hopefully they will make it here to respond).


              • #8
                Cant see any advantage to landlord.

                More benefits to tenant than LL. They dont need to fork out for initial bond and dont even need to clean up or repair damage when they leave. They will simply expect LL to claim it on insurance.

                No blood money means tenants won't care.


                • #9
                  Agreed, I don't see the benefits for LL's at all.

                  I use the 3-4 weeks bond + rent in advance as evidence that the tenant has money available to pay the rent, and can manage their finances. I'd be reluctant to rent to someone who couldn't come up with bond money.

                  After reading through their website it seems that if you want to claim then you have to get an order from the TT too.


                  • #10
                    Oh ye of little faith.

                    If your tenant selection processes are up to scratch, then what difference does it make if the bond is (effectively) sitting with the DBH or with an insurer?

                    I see two main disadvantages:

                    1. The six month minimum period for a tenancy. If a tenant bunks before that time (even with a FTT in place), then the policy is void.
                    2. The time it can take to get money back. With a bond lodged with the DBH, a LL can negotiate a satisfactory payout without having to go through the TT process.

                    1. Fill vacancies earlier (possibly).
                    2. More profit. Jack rent up by $20pw, pay (say) $10 insurance premium.

                    If your tenant selection systems are up to scratch, then it should not be much more of a risk using an insurance policy than actual bond.

                    However, if it is true that one can't lodge a TT application without a bond, as keys suggests, then the policy would never pay out, unless one had a nominal bond ($1) lodged.

                    Just a few thoughts in between tasks....



                    • #11
                      Originally posted by CJ View Post
                      Did they get it back when they moved out?
                      Interesting follow up on that one. I gave my son $2 and put a one party claim in for bond (via email as that's free to use). I got it the next few days without the bond center following procedures by notifying the tenant.
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                      • #12
                        Would it provide less work for the Property Managers?


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                        • #13
                          Originally posted by donna View Post
                          Would it provide less work for the Property Managers?


                          No, it's going to be more work because you will have to go to the tenancy tribunal and win your case to get paid. You can't just agree with the tenant that you get some of the bond.

                          Also, I haven't looked in to it but if the landlord is "the insured" then I expect if the insurance company had it pay out the insurance company would then go after the tenant to recover the money paid plus admin costs.

                          I can see this leading to an increase in tenancy tribunal cases if it is successful. TT fees will increase as they are no longer getting interest from the bonds.

                          I wouldn't do it. I don't trust the insurance company to pay out and I don't trust the TT to make sensible decisions.


                          • #14
                            Hmmm, tenant can't pay Bond, so agrees with LL for "insured" SmartBond.

                            How does the LL lodge Bond at TS if there is no actual money?? Does the LL get a promissory note from SmartBond? Is this promissory note good enough to be used to lodge a "Bond"??

                            Okay, taking best case scenario and this happens, no problems. If there is dispute over state of property at end of tenancy, then LL/Tenant claim/counter claim against Bond (ie normal procedure).

                            What happens if DBH won't accept promissory note from SmartBond?? Remember, there is no money lodged with Bond Centre, therefore no Bond no.

                            How is LL/Tenant going to make a claim against Bond?? As stated by other posters, no Bond number therefore neither party can make a claim.

                            Also there is no "hurt" money for the tenants getting into the property. If the tenants haven't physically had to stump up for the Bond, why would they care if they leave the property in a mess?? So they pay an extra $10 on top of their rent for "Bond insurance", so what?? $10 is what - not even half a packet of cigarettes (? - just guessing, I don't smoke).

                            The tenants don't always pay the weekly rent, so the LL is out of pocket twice - once for the missing rent and one for the insurance for the Bond, which will still need to be paid.

                            It's hard enough to make some tenants responsible for looking after properties anyway, making them less responsible (making it easier) for them not to pay Bond is, IMHO, just asking for trouble.

                            Re TS not receiving enough money to keep TS running. Rubbish. I have it on very good authority, that the Bond Centre has several million of unclaimed Bond money in their account, which they put on deposit roll-over every month.
                            Patience is a virtue.


                            • #15
                              Originally posted by Keys View Post
                              Interesting follow up on that one. I gave my son $2 and put a one party claim in for bond (via email as that's free to use). I got it the next few days without the bond center following procedures by notifying the tenant.

                              I had one situation at end of tenancy, tenant still owed under $200. PM kept trying to contact tenant, no success.
                              I ask PM to put in one party claim expecting to have to wait at least 28 days.
                              I later learn that tenant had put in bond refund without PM's signature and TS paid out.
                              Tenant has paid balance but this situation is cause for concern for all LL if their tenant can get at the bond money without them knowing.

                              has anyone else encountered one party claim when the TS have not notified the other party?