A change in tenancy without changing insurance cover can be costly.
As many landlords across the country grapple with the prospect of high vacancy rates and falling rents, the option to lease their properties for short periods begins to look attractive. And while there is much to think about when it comes from going from long-term leasing to holiday lets, it’s important that landlords make it a priority to switch their insurance cover too.
Standard residential tenancies are different to short-term rentals, that’s why there are specific landlord insurance covers for each letting scenario. The risks facing landlords renting out property on fixed-term leases are not the same as those for holiday home owners.
While there are some aspects of landlord insurance that apply to both fixed-term and short-term rentals – such as owner liability or accidental or malicious damage to the building, fittings and fixtures – the different lease arrangements also pose unique risks.
Owners of properties being rented short-term, like holiday lets or corporate leasing, need comprehensive cover for the home’s contents beyond the regular fittings and fixtures. Short-term rentals generally come fully furnished, complete with linens, crockery, cookware, and entertainment equipment – all of which can suffer damage or be pilfered by renters. Comprehensive contents cover is usually not applicable in other landlord policies.
Homes rented out on fixed term leases (that is, there is a tenancy agreement) are subject to different tenant-related risks. These include issues such as loss of rent from breaches of the tenancy agreement. There are many reasons why a landlord can lose rent but high on the list is a tenant defaulting on payments or breaking lease. Financial hardship, unemployment, ill health, shattered relationships, death and even just ‘bad tenant’ behaviour can all result in the landlord being left out-of-pocket when rent is not paid. It is factors like these that make it imperative to have cover for tenant-related issues in fixed-term leases.
Aside from contents cover, ‘loss of rent’ is a key area where the differences between insurance for short-term rentals and fixed-term leases can pose crucial differences for landlords. RentCoverShortTerm does offer cover for loss of rent (up to $50,000), but only if the property cannot be let due to an insured event, for example if the property is damaged and awaiting repairs or access is not possible. Given the nature of short-term rentals, where there is no tenancy agreement other than for holiday letting or similar short-term purposes, cover for lost rent, from factors such as default or broken leases, is not applicable.
It is a difference that turned out to be an expensive lesson for one policyholder.
The owner had an investment property which was being used as a holiday let and insured under a RentCoverShortTerm policy. They then decided to let the property on a longer term basis and got a tenant in on a one-year fixed lease. However, the owner failed to change their cover from ShortTerm to Ultra or Platinum, which provide cover for properties with tenancy agreements.
The tenant then broke the lease early and the policyholder hoped to claim loss of rent but was unable to do so because breaking lease was outside the scope of their ShortTerm policy (it does not provide cover for long-term tenants on a written lease).
If a policyholder is looking to change from a fixed-term lease to a temporary rental or vice versa, it’s important that they or their PM contact us to switch to the right policy for the type of lease being used.
Having landlord insurance is a must, but making sure it is the right cover is paramount.
Our advice about insurance is provided for your general information and does not take into account your individual needs. You should read the Product Disclosure Statement and Policy Wording prior to making a decision, these can be obtained directly from EBM.