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Why rent guarantee cover is vital for landlords

9 May 2014

Rent guarantee insurance is becoming a vital part of the landlord’s business protection toolkit.

Rent guarantee insurance offers help with the cost of legal expenses and lost rent when a tenant falls into arrears and eviction is the line of defence for the landlord.

Tenant financial status is improving, along with the economy and job prospects.

However, although most tenants are genuine and pay the rent on time, a few are serial non-payers.

Before a tenant falls into rent arrears, the first step is always to try and talk over any potential problems with them to avoid them going into arrears.

Sometimes, this is just not possible and action to end the tenancy and take the property back has to go ahead.

Rent guarantee covers this cost by bridging the cash flow gap for landlords who may well have financial problems themselves from tenants in rent arrears.

The scale of the problem is immense – according to the latest figures from LSL Property Services, who run some of the country’s biggest letting agent chains.

In March 2013, nearly 8% of all rents were in arrears. That adds up to almost £270 million.

Rent guarantee insurance comes as a standalone product or bundled with other landlord insurances, like buildings and contents cover.

However, many landlords do not make sure they have covered the qualifying conditions before trying to make a claim.

If a rent guarantee insurance claim is to succeed, then landlords must tick these four boxes:

• For Total Rent Guarantee Insurance the landlord or letting agent must have an Arc legal Insurance approved credit and reference check on the tenants before they sign a letting agreement and move into the rental property

• The tenants must have a signed assured shorthold tenancy agreement of 12 months or less

• The landlord must have taken a cash deposit of at least one month’s rent

• The deposit must be lodged with an approved tenancy deposit protection scheme

Insurers will ask for copies of these documents and proof the deposit is protected. If one of the points is missed, it’s likely a claim against rent guarantee insurance will be turned down.