The truth is – if faced with a choice between paying the rent or putting food on the table, keeping the lights on or the house warm, tenants may let the rent slide.
When times are tough, keeping up with the rent can be a challenge. But landlords are also facing financial pressures, including those same cost of living expenses as well as rising mortgage rates. As many landlords rely on rental income to pay the mortgage on their investment property, it doesn’t take long for tenants failing to pay their rent to become a big problem.
Around two-thirds of all landlord insurance claims are for loss of rent – and the main culprit is rent arrears. At EBM RentCover we help landlords avoid the financial stress that comes from being out of pocket by offering cover for loss of rent – both for rent default and denial of access.
While landlord insurance is a great safety net, the old saying goes, “prevention is better than cure”. So how can landlords and their agents minimise the risk of rent arrears? We have some tips…
Secure the right tenant
Tenant selection is crucial. Check tenancy databases, speak to previous landlords and agents, call up referees, and verify employment details and income to confirm that the tenant/s can afford the asking rent and are ‘good payers’.
Keep on top of arrears
If your tenant has fallen behind in their rent, the sooner you know about it, the sooner you can attempt to resolve the issue.
When it come to late payments, address them promptly before they snowball (it’s easy for a couple of late payments to quickly spiral out of control if tenants can’t catch up). Also remember, a missed payment may just be an oversight by the tenant, so get in touch and have a chat.
Note: It’s a condition of landlord insurance policies to act to prevent further loss – and this includes when it comes to rental income. Landlords and agents need to act quickly to address rent arrears to limit the rental losses. Keep in mind there is a limit on the number of weeks an insurer will cover loss of rent due to rent default, so slow follow-ups can have financial consequences for landlords.
Inspections are a must
Regular property inspections can go a long way. Be mindful of any ‘red flags’ that may suggest the tenant is about to do a runner (abscond) and rent default is on the horizon, signs like the tenant avoiding your calls to set up an inspection, the cupboards being bare, bill reminders on the benchtops, dwindling possessions like clothing and furniture, packing boxes onsite, or services disconnected.
Relationships are important
Build good rapport and a positive working relationship with your tenants. If your tenants are disgruntled, they’re more likely to break their rental agreement, abscond or default on rent. Happy tenants are more likely to pay their rent on time, stay in the property longer and look after it as if it were their own.
A little understanding can go a long way
While there are some tenants who do the wrong thing on purpose – breaking leases, absconding, refusing to pay rent, refusing to vacate or squatting – for other tenants, the inability to pay their rent is often beyond their control. Financial hardship due to job loss, relationship breakdown (between couples or housemates), unforeseen expense, death or illness can result in even the best tenants finding themselves financially compromised.
These kinds of circumstances may mean only a temporary interruption. If your tenant’s circumstances are legitimately impacting their ability to pay their rent and you’d like to keep them in the property, then consider what can be done to help – so long as it’s financially feasible.
Word to the wise: Be sure to check the insurance implications of any leniency measure you look at offering your tenants. Some measures, such as waiving rent or reducing rent, can impact loss of rent claims. For example, if you’ve waived rent owed, you can’t claim the loss on your insurance. Likewise, your policy won’t cover the difference in the original rent and the reduced rent. Claims may also get complicated where payment plans have been put in place, but the tenant fails to catch up and the arrears are not repaid.
Be prepared if things don’t work out
It is vital that you understand the legal procedures and why and how you can seek restitution or eviction. If you end up needing to evict or go to court over the matter, having all your paperwork in order will help your case and any subsequent insurance claims too.
Invest in landlord insurance
Neither landlord nor agent rents a property to a tenant expecting that they’ll default on the rent. But sometimes life and circumstances beyond anyone’s control can derail the best intentions of even the most diligent tenant. Having a specialist landlord insurance policy that offers cover for loss of rent, and specifically rent default, is a wise investment.
If you would like to talk about cover options to protect an investment property, EBM RentCover can help. Chat to our team today – 1800 661 662.
*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are here, contact 1800 661 662 if you have any questions.
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