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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.
By GREG NINNESS - Sunday Star Times Last updated 05:00 04/07/2010
The PressFLAT 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.
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