This article was originally published on 24/02/2020 and was reviewed and updated accordingly on the above date.
Don’t risk being caught short – there are times when your rental isn’t covered by your landlord insurance.
At EBM RentCover we look to educate landlords and agents about the unknown. And one thing that is sometimes not known, or understood, is that there are times when a rental will not be covered by insurance. Those times include when it is undergoing renovation and also if it is left vacant.
How long is too long?
The maximum amount of time a property can be left unoccupied and still receive full coverage varies from insurer to insurer, so check the PDS. The specific number of days varies, usually between 30 and 90 days – for EBM RentCover policies it is 90 consecutive days.
In addition to an absence of tenants, some policies may consider the premises to be unoccupied if the minimum furnishing requirements to make the property habitable are not met. Always check with your insurer.
What happens if the property is left vacant?
If the property is vacant for longer than the policy allows, it will be considered unoccupied, and one of two things could happen:
- The insurer may impose an additional excess on any claims that arise while the property is unoccupied or place restrictions on coverage.
- The policy may be cancelled.
PLUS, if there is a loss during the vacant period and the insurer wasn’t notified about the extended vacancy, the claim may not be paid, or the amount covered may be reduced.
At EBM RentCover, if you notify us that the rental is unoccupied, we may be able to continue cover with an increased excess.
Why is a vacant property a problem for insurers?
Insurance is all about risk.
Unless you have specifically arranged cover for vacant premises, when you take out cover for your rental, or even your own home, that cover is based on the expectation that the property is occupied.
You might think that a property minus tenants is less likely to have problems – you may be right when it comes to tenant-related risks like tenant damage or rent default – but vacancy actually increases other risks, such as:
- theft (not just contents, things like fixtures and metals such as copper pipes)
- vandalism and graffiti
- malicious damage
- illegal dumping (which can lead to pest and vermin issues)
- undetected need for repairs
- fire inception due to defective electrical equipment or undetected maintenance issues
- general deterioration caused by adverse weather and
- water ingress/damage.
Risk: criminal element
When a property is unoccupied it is a prime target for burglars, thieves and vandals. There is an increased risk it could be used as a ‘squat’ or clandestine drug lab, or suffer malicious damage.
Case in point: The rental was vacant and was broken into. The windows, doors and interior were damaged. Remaining vacant, there was a second break-in. And then a third – this time squatters lit a fire. To compound the matter, a storm also passed through causing even more damage to the walls and flooring. The result? More than $30,000 in damage was sustained due to the house being unoccupied.
Risk: preventable damage
Events that might cause only minimal damage, if the property is occupied and there is someone around to look after it, can cause much more serious damage when there is no-one home.
Case in point: The property was vacant and a water pipe burst in the bathroom vanity. The damage wasn’t discovered until a neighbour noticed water coming out of the property and called the owner. Most of the home had been flooded and the floors, skirting boards, doors and vanities all had to be replaced – at a cost of $54,500.
When there is no occupant, the landlord or agent may not get to site quickly enough to protect the property from threats like fire, storm or other weather-related perils. This is also true when it comes to acting to prevent further loss – taking action to prevent the damage getting worse – which is a requirement under insurance cover.
It is important to understand that the owner still has an obligation to keep the property safe (duty of care), even if there are no tenants. This means if someone is on the premises, such as the agent doing an inspection, a meter reader, tradie, postie or charity collector, the owner can be held legally liable if that visitor sustains an injury or loss. That makes it imperative for the property to remain covered for legal liability, even if it is vacant.
What do I need to do?
You must notify your insurance provider if your rental is unoccupied for an extended period, as you will need to get written agreement from them that full cover will continue.
Your insurer will determine if they are willing to provide cover, under what terms and conditions, at what premium, and for how long. A vacant property can require either an endorsement or a separate policy, depending on the insurance company, and some will not insure vacant homes at all.
For insurers willing to take on the risk, coverage limits and premium costs for unoccupied and vacant homes vary, based on how long the home will be empty and the steps the owner takes to protect the property, such as installing smoke detectors and alarm systems. In most instances, if the insurer agrees to extend cover, the policy will only cover standard perils such as fire and wind, but not perils such as water damage due to burst pipes, glass breakage or vandalism. They may also impose additional exclusions and restrictions on the policy, for example, it may be a requirement to ensure the premises is kept in a ‘lived-in’ state, or that it is inspected frequently. You’ll find that excesses will usually increase when the premises are unoccupied too.
If you neglect to tell your insurance provider that your rental is vacant, you could void your policy and leave yourself exposed to the costs if the property is damaged.
There are a number of reasons why a rental may be vacant – through design or by circumstance – but regardless of the why, it is important to make sure the property remains adequately insured or you could risk losing more than just the rental income.
*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 there, contact 1800 661 662 if you have any questions.
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