Landlord insurance to cover unpaid rent

[Lanthanide]

My management company emailed me today telling me that my tenants are now 2 weeks in arrears and they've applied to the tenancy tribunal to terminate the tenancy (anyone know how long this tends to take?). It's a bit of a pity, because apart from paying rent late, they've looked after the house and garden very well. Also I think they'll have trouble finding 5+ bedrooms in CHCH that allows 2 cats and a large dog, but that'll be their problem.

Of course it's too late for this situation, but I really would have liked to have had landlords insurance to cover the potential shortfall in rent. Does anyone have any recommendations for landlord insurance? Anyone have any horror stories about intentional damage to property and why you should have LL insurance? Any recommendations for insurance brokers?

At the moment I've just got a landlord add-on as part of my house insurance that just covers 10k of property damage but nothing else.

[Perry]

AFAIK, an application to terminate the tenancy will have
a good chance of failing if no 14 day notice to correct
the rent arrears was issued.

[Lanthanide]

My PM company is a large, well-known and long-running company, so assume that they're competent and know what they're doing.

Do you have anything useful to add on the actual topic of this thread: landlord insurance?

[Perry]

My PM company is a large, well-known and long-running company, so assume that
they're competent and know what they're doing.

I was not seeking to be unhelpful. But I will add that presumption about a PM firm
being competent and know[ing] what they're doing has been the subject of
many Property Investors' anguished posts and threads on PropertyTalk. Sometimes,
all it can take is a change of staff member to go from great service to appalling.

Do you have anything useful to add on the actual topic of this thread: landlord insurance?

Of course it's too late for this situation, but I really would have liked to have had landlords
insurance to cover the potential shortfall in rent. Does anyone have any recommendations
for landlord insurance? Anyone have any horror stories about intentional damage to property
and why you should have LL insurance? Any recommendations for insurance brokers?
At the moment I've just got a landlord add-on as part of my house insurance that just
covers 10k of property damage but nothing else.

First, it is not necessarily too late to remedy the situation if it is solely a matter of
being a couple of weeks behind in the rent. Handing off the PM chore to someone
else does not preclude tactful and timely personal involvement in such cases.
Especially given your comments that it's a bit of a pity, because apart from paying
rent late, they've looked after the house and garden very well.

The application can be easily withdrawn. Is your name on the TA, along with the
PM outfit? Or just the PM outfit?

Paying late versus not paying at all should probably be managed quite differently,
given the circumstances. I have a tenant who is paying an extra $25/week to make
a up a historical rent payment shortfall. That's not ideal, but one helluva lot better
than an empty rental.

A TT application to end the tenancy is quite severe. Is the TT application for two
weeks in arrears the only reason mentioned in the e-mail to you from the PM?
If so, my former view prevails: the TT will be unlikely to order a termination.

Crombie Lockwood is probably the best bet as a broker to provide LL insurance.
They have recently swallowed another brokerage - Ahlers.

I doubt if you'd get any payout for missed rent as a consequence of a deliberate
act by you/the PM that resulted in the rental being empty. I further doubt if failure
by a tenant to pay rent would be covered - just think of the implications.

[Lanthanide]

First, it is not necessarily too late to remedy the situation if it is solely a matter of
being a couple of weeks behind in the rent. Handing off the PM chore to someone
else does not preclude tactful and timely personal involvement in such cases.
Especially given your comments that it's a bit of a pity, because apart from paying
rent late, they've looked after the house and garden very well.

Here's the email I received:

We are experiencing rent arrears with ... your current tenant.
From the start of his tenancy we have always had rent problems but with a large amount of chasing and visits he eventually catches himself back up.
This time there is two weeks arrears and he is not responding to letters or visits.
I have made an application to the tenancy tribunal for termination of this tenancy if the rent arrears are not addressed and kept up to date.
I will advise you how the hearing goes, please do not hesitate to communicate with me to discuss this further.

I hadn't known about the history of difficulty in getting rents, however even if I'd known this information it doesn't look like I could have used it to my advantage in any way - the landlord insurance I've googled generally excludes existing tenancies if there is a history of delinquencies. Apparently he also pays the rent in cash each week, which sounds a bit odd to me with the sum involved but there you go. Apparently once when he came to pay and complained about a water leak from the upstairs shower he appeared to be drunk.

The application can be easily withdrawn. Is your name on the TA, along with the
PM outfit? Or just the PM outfit?

The TA says:

Landlord: Property management company Ltd. (acting as agent for the property owner)

Paying late versus not paying at all should probably be managed quite differently,
given the circumstances. I have a tenant who is paying an extra $25/week to make
a up a historical rent payment shortfall. That's not ideal, but one helluva lot better
than an empty rental.

In this case I suspect they're not paying because they don't have the money. Frankly I've always been a bit surprised they could afford the rental as it appears it is only the husband that works in a blue-collar job with several teenaged children in the house.

A TT application to end the tenancy is quite severe. Is the TT application for two
weeks in arrears the only reason mentioned in the e-mail to you from the PM?
If so, my former view prevails: the TT will be unlikely to order a termination.

Judge for yourself.

Crombie Lockwood is probably the best bet as a broker to provide LL insurance.
They have recently swallowed another brokerage - Ahlers.

Thanks.

I doubt if you'd get any payout for missed rent as a consequence of a deliberate
act by you/the PM that resulted in the rental being empty. I further doubt if failure
by a tenant to pay rent would be covered - just think of the implications.

That's not what my googling of landlords insurance suggests. Here's a quote from one of the more explicit policies I've come across:

Loss of rent will start from the day after the tenant's last paid rent e.g. if the tenant is paid up to and including 10 May the claim will begin from 11 May. The loss of rent will be calculated until whichever of the following events occurs first:

a. The day before the property is re-let
b. The expiry of the lease agreement
c. The date the landlord withdraws the property from the rental market
d. The date from which the tenant vacated if no effort is made to replace the tenant
e. The maximum amount claimable is reached

Here's another from State:

If you have to evict tenants because they haven’t paid their rent, we’ll pay you up to 12 weeks’ rent.

The reason I'm asking this question is because it appears a lot of LL insurance is offered by smaller companies, rather than the well-known insurance companies. My existing house insurance policy has the additional LL option but it doesn't cover missed rents. They also offer a separate LL policy but it is much more limited to the other options I've found through googling and the missed rents claim is for $500 for a maximum of 6 weeks, which is a bit of a shortfall on my current rental, but if the price of the policy is low enough then this may be a good option.

[Perry]

I doubt if you'd get any payout for missed rent as a consequence of a deliberate
act by you/the PM that resulted in the rental being empty. I further doubt if failure
by a tenant to pay rent would be covered - just think of the implications.

That's not what my googling of landlords insurance suggests. Here's a quote from one of the more explicit policies I've come across:

Real Landlord Insurance
Loss of rent will start from the day after the tenant's last paid rent e.g. if the tenant is paid up to and including 10 May the claim will begin from 11 May. The loss of rent will be calculated until whichever of the following events occurs first:

a. The day before the property is re-let
b. The expiry of the lease agreement
c. The date the landlord withdraws the property from the rental market
d. The date from which the tenant vacated if no effort is made to replace the tenant
e. The maximum amount claimable is reached

Here's another:
State: Landlord insurance
If you have to evict tenants because they haven’t paid their rent, we’ll pay you up to 12 weeks’ rent.

That does surprise me. I must ask my broker at Crombie Lockwood
about that. I've never had to make such a claim before and I have
a vacancy caused by a defaulting tenant, with a TT Order for poss-
ession and payment.

Maybe I'm on to something outside my experience, to now? If so,
this thread will be the catalyst.

[Lanthanide]

Given the lack of interest in this thread, it seems very few people were aware of this type of insurance being available. One of the places I googled up said that only 20% of landlords had this type of insurance, with most just going for the add-on as part of their general house cover and believing that to be sufficient.

The policy prices I have seen on a couple of sites were ~$350 and ~$400 annually, with coverage of $750 or $1000 rental per week for 8-12 weeks. Seems very cheap for such coverage. They also cover intentional damage to landlord property, which is usually not covered under standard house insurance. One of them pointed out a loophole that they claim some general insurers use: purposeful damage not covered under the main policy, and fire damage not covered under the optional LL add-on, so if a tenant purposefully burnt your house down you'd receive nothing.

I called up my insurer to try and get a quote on how much their separate LL package is ($500 weekly rental max coverage for 6 weeks), but my actual policies are ones re-sold through my bank so they aren't able to quote me new product prices due to their agreement with the bank, so I'd have to cancel my existing policies which is a no-go as I have outstanding EQC claims. So I've asked for a quote through their website. I'm thinking if they come back with something like $150 annually I'll probably just go with it - not as much coverage, but a lot cheaper than the other options I've come across so far.

[Perry]

Well, I have (what I think is) fairly comprehensive
LL insurance that does include lost rent. What I'm
less sure of is the type of 'event' needed to trigger
a claim on such a basis. My e-mail to my broker,
plus a copy of the TT Order has gone, already!

I'll let you know how my request is responded to.

[Son of G]

When ever I have read the fine print of such policies I realise the loss of rent policies are not worth paying for.

To get a payout you must do the following:
Apply all known best practices in managing tenancies.
Send a 14 day letter at the first sign of missing rent
Apply to the TT on expiry of the letter.
Provide full assistance to the insurance company in recovering the debt if there is in the end a payout.

The gotcha is that if you do the above, but do not have loss of rent cover, you will not have large losses.
I expect that only landlords who do not follow up on missed rent get tenants that build up large debts.

[Clark Kent]

I have Landlords insurance, best things I ever did. I have it through State, When the Feb Earthquake hit, my tenants did a runner, I was entitled to 6 weeks rent to cover my losses. Then In June 2011 another good size quake hit and the house was a write off, I was paid out for loss of rent for 12 months until I got my EQC payment through. I wouldnt buy an IP without Landlords insurance.

[Perry]

I can appreciate that, however, it was precipitated
by an "event;" viz. the quake. Even then, I wonder
that they didn't weasel out under the act-of-deity-
construct clause.

[Clark Kent]

They did try to weasel out of paying out the 6 weeks loss of rent due to the tenants doing a runner, we were able to get them to reverse there earlier decision not to pay out on that, upon giving them a moutain of evidence that infact the tenants did do a runner due to the Earthquake. The girl at State Insurance I was dealing with got rather upset that they had to pay me out (as if it was coming out of her wages). If they can find a way they will try to get out of paying.

[DazRaz]

AFAIK, State are not offering LL insurance in Chch atm. At least they weren't in April when I bought my last one. LL insurance is all very nice but in Chch there is no consumer choice - well some choice for some homeowners.

[Lanthanide]

When ever I have read the fine print of such policies I realise the loss of rent policies are not worth paying for.

To get a payout you must do the following:
Apply all known best practices in managing tenancies.
Send a 14 day letter at the first sign of missing rent
Apply to the TT on expiry of the letter.
Provide full assistance to the insurance company in recovering the debt if there is in the end a payout.

The gotcha is that if you do the above, but do not have loss of rent cover, you will not have large losses.
I expect that only landlords who do not follow up on missed rent get tenants that build up large debts.

I put these concerns to the PM company, they replied with this:

We have found that landlord insurance does work, we always issue the correct paper work and follow through all matters as expected in accordance with the legislation of the RTA.Contact your insurance company and see what they need, we are happy to supply all necessary paper work to them.

So I'll definitely be in the market for this now.