Insurance insights

When is a tenant not a ‘tenant’ and why it matters

When is a tenant not a ‘tenant’? When they are a sub-tenant. And if you think it is all one in the same, think again. There are important distinctions and understanding them could save you thousands of dollars and unnecessary stress.

Approved tenants have a declared, direct relationship with the landlord. Sub-tenants have a direct relationship with the approved tenant, but not the owner of the property or their property manager. And yes, sub-tenancies at rental properties can be risky.

Who is who at a rental property?

Understanding the difference between an approved tenant and a sub-tenant (and even an approved occupant) is critical because their rights, responsibilities and relationship to the landlord are not the same.

• Approved tenant. An approved tenant (or co-tenants) is the person who signs the lease agreement with the landlord. They have a direct legal relationship with the landlord and are bound by the terms of the lease. This means they are responsible for paying the rent, complying with the agreement, and ensuring the property is properly cared for.

• Approved occupant. An approved occupant is someone who lives at the property with the landlord’s permission but does not sign the lease. This may include a partner, family member or other household member. While they reside at the property, they are not legally responsible under the lease in the same way a tenant is. For transparency, approved occupants should ideally be recorded on the lease.

• Sub-tenant. A sub-tenant is different again. A sub-tenant rents all or part of the property from the approved tenant, not from the landlord. There is no direct legal relationship between the sub-tenant and the property owner. In a sub-letting arrangement, the approved tenant remains legally responsible to the landlord under the original lease, while the sub-tenant is responsible to the tenant under a separate agreement between them.

Just because a tenant leases the whole property does not mean they automatically have the right to sub-let it. In Australia, sub-letting generally requires the landlord’s consent to be lawful. Without approval, the tenant may be in breach of the lease.

Why approved tenants offer the strongest protection

The distinction between an approved tenant, an approved occupant and a sub-tenant ultimately comes down to risk exposure.

When a landlord rents out their investment property, there are no guarantees about how it will be treated or whether rent will always be paid on time. What provides reassurance is a properly executed lease agreement with approved tenants.

The lease agreement creates a direct legal relationship between the landlord and the tenant (or co-tenants) who have signed it. Those on the lease are contractually bound to:

• Pay the rent

• Care for the property

• Comply with the lease terms and relevant legislation

• Ensure anyone residing with or visiting them does the same

When tenants are properly documented and approved, accountability is clear.

Why does it matter?

Clearly identifying approved tenants on the lease not only establishes accountability, it is also essential for insurance purposes. Standard landlord insurance policies require a valid lease to be in place. Without one (and a bond collected), protection may not be available.

A written lease with approved tenants confirms the tenancy is legally enforceable and demonstrates that proper risk management steps have been taken, which insurers rely on when assessing and approving claims.

Insurance and sub-letting

Sub-letting introduces occupants who have not been screened or formally approved, and who are not legally bound by the original lease. This can restrict insurance cover, create uncertainty around liability, and make it much harder to recover unpaid rent or repair costs. Unauthorised sub-letting also puts the original tenant at risk, since they remain fully responsible for rent and any damage, even if the sub-tenant fails to meet their obligations.

How to avoid stress

To avoid stress with sub-letting, it is best to encourage all tenants to be formally named on the lease. In many cases, a co-tenancy arrangement is safer and clearer than a sub-tenancy, as it ensures that everyone is legally accountable.

Maintaining open communication with approved tenants and periodically checking for any changes in living arrangements or circumstances can also help prevent misunderstandings. It is important to set clear expectations from the start, making it very clear that unauthorised sub-letting is strictly prohibited and can have serious legal and financial consequences.

During routine inspections, be observant for signs of unapproved sub-letting, such as extra vehicles or additional appliances like fridges or washing machines. Early detection not only helps protect the property but also ensures that insurance cover remains valid.

If a landlord is even thinking about allowing a sub-let (or any changes in leasing arrangements) they should check with their insurer first.

Got a question about sub-letting and impact on your insurance? Give the EBM RentCover team a call on 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.