This is day 21 of my 31 days of tips on tenancy agreements series. To see the rest of the series click here

Dealing with insurance

There are two types of insurance to consider here – the landlords insurance and the tenants insurance.

Landlords insurance

Most landlords will have insurance cover.  If you don’t you should have – your property is a valuable financial asset which you are handing over to strangers.  You need some protection.

You will also want to be sure that your insurance is not being invalidated by your tenants, or if it is, that you have the right to claim against them for your losses.  And here is where the drafting points come in.

Under the Unfair Terms in Consumer Contracts Regulations, it will be considered unfair (or so the Office of Fair Trading consider, and I have to say that I agree with them) if you try to make tenants responsible for complying with terms and conditions which they  have never seen.  So you need to provide them with a copy, either of the whole of your insurance policy, or an extract of the relevant parts.  So that they know what type of behaviour to avoid.

If you don’t do this, then your clauses aimed at making your tenants responsible (for example) for additional premiums payable because of their conduct, are likely to be found void.

If you do not have insurance, you are taking a great risk.  Indeed as it is generally assumed that landlords will have adequate insurance, there may be problems in recovery from tenants if they cause damage, on the basis that you have failed to mitigate your losses.

Tenants insurance

The insurance that you take out will normally only cover the fabric of the building and your own fixture, fittings and contents.    It will not cover your tenants possessions.  They need to be made aware of this, and told that they need to arrange their own cover.

However it seems that, from reading the OFT guidance on unfair terms on tenancies, that some landlords are going further and offering insurance policies to their tenants.  And others are going even further and insisting that their tenants take out specific policies (upon which no doubt they will be earning a commission).

The OFT say, and once again I entirely agree with them here, that this is not something you are entitled to do.  Any contract term which requires tenants to buy insurance products from you, will be void.  And if you are a member of any professional organisations, this is something the tenants can complain about to them, and which the organisation ought to penalise.

Do you have any comments on this section? Have you come across landlords trying to sell insurance to their tenants?  Have you known any cases where landlords have tried to claim from tenants instead of having insurance cover?

NB Read about my tenancy agreements service here.

Criminal convictions and insurance

I have recently become aware of quite an alarming development in private renting. It is to do with insurance policies in relation to criminal convictions of residential occupiers.

A friend of mine pointed me in this direction, she is the procurement officer for a local authority responsible for bringing in private lettings as a discharge of housing duties for people applying for homelessness assistance.

All sensible landlords should take out insurance but in many cases their insurance policy is invalidated when the occupier has an unspent criminal conviction within the past 5 years. This applies to not only tenants but owner occupiers too.

The situation is highlighted in the frightening case of poor Michelle Barber. Her estranged husband Gary Hooley burnt down her home and was jailed for 4 years for arson. Ms Barber understandably claimed on her insurance a sum of £241,000 because the house had been razed.

Insurers Aviva (formerly Norwich Union) paid out but 2 weeks before she was due to move back into her home, insurance investigators found out that she had, just a few years prior to taking out the policy, been fined £150 for an overpayment of housing benefit. Aviva duly voided the policy as a result and are claiming the money back off of her for failing to disclose a previous conviction.

They stated that had she disclosed the fine they would not have offered her a policy.  This is apparently common practice in the world of insurance and apart from general motoring offences many insurance policies are invalidated if an occupier fails to declare an unspent conviction however trivial.

Journalists for the ‘Cash’ column of the Observer newspaper contacted Norwich Union and Direct line insurance asking for cover and declaring an imaginary £100 fine from 2 years ago for dropping litter to see if they could get cover. Both companies declined to offer insurance.

Now this is bad enough when it comes to the policies of owner occupiers but it also effects the tenants of landlords. If a tenant has an unspent criminal conviction then this can void the landlords insurance. This is the case even if the tenant doesn’t tell the landlord about it, which understandably many tenants would not feel was any of the landlord’s business.

Another friend of mine is the procurement officer  for another local authority and has been set the task of finding landlords willing to let accommodation to ex offenders. She has to wrestle with the idea that the offence could seriously effect the landlords insurance against the prospective tenant’s right to privacy and her own duties under the Data Protection Act.

I can understand landlords not wanting an ex offender in their property in case it invalidated their insurance but does this then mean that ex offenders will not be able to ever rent accommodation?

Approximately 7.3 million people in the UK has a conviction or caution behind them. Insurance is always underwritten against certain risk factors and if, to use Michelle Barber’s unfortunate case, a residential occupier has a previous conviction for setting fire to their own home and then subsequently did it again I would think that most people would understand the company’s problem but how can it be possible or even sane to invalidate a person’s insurance for failing to declare a housing benefit fine?

Housing benefit overpayment = likelihood of arson by someone else? Where is Franz Kafka when you need him!

This effectively leaves the best part of 7.3 million people without insurance cover, not because of government legislation but because of insurance companies looking to get out of paying on a policy in any way they can. And I invite comments from anyone in insurance to justify the logic of these blanket policies on trivial unspent convictions.

• A mother has an old conviction for shoplifting from 4 years ago whilst suffering from post-natal depression
• A working accountant has a previous conviction when as student they were convicted of urinating in a public place during student rag week.
• A banker has a conviction for dropping litter in public….

come on. How does any of these possible scenarios make a person more of a risk to insure in residential accommodation?

If every single insurer indulged in this blatant rip-off there might be a case to defend, if only by numbers alone but there are insurers who don’t penalise their customers for minor historic infractions of the law:

• Insurable: 0845 0779949 | www.insurable.com
• Fresh Start Insurance: 01733 208278, | http://www.freshstartfinance.com/Buildings-and-contents-insurance
• Anchor Underwriting: 020 3301 3393 | email: peter@anchorunderwriting.co.uk
• Guildhall Brokers: 020 8446 6307 | www.guildhallbrokers.com
• Fairplay Insurance: 01424 222082 | www.fairplayhelp.com

If these companies can set up policies that don’t penalise 7.3 million people why cant Aviva or Direct line?

The Rehabilitation of Offenders Act 1974 sets a time period based on the sentence given that offences must be declared to employers and insurers. Depending on the nature of the offence the time period can be either 6 months or forever.

The legislation is one thing but do ex offenders even know that a trivial conviction needs to be declared to their landlord?

Ex offenders charity ‘Unlock’ is mounting a campaign against the blanket policies of insurers not to offer cover to people with convictions.  Luckily the government has plans afoot to deal with this problem. The Law commission has a consultation paper out inviting comments by the 24th June 2010. Hopefully a new law will eradicate this insane practice once and for all.

Ben Reeve-Lewis

About Ben Reeve-Lewis: Ben was the Tenancy Relations Officer for Lewisham Council for 11 years, prosecuting landlords for harassment and illegal eviction. Now he is a freelance housing law training consultant with a more balanced approach, delivering housing law courses for the Chartered Institute Of Housing, Shelter etc. His aim now is to help the housing world work as a interdependent system that benefits all

Property Investor News

Reading (rather late) the October issue of Property Investor News, I came across these interesting snippets of news:

Insurance
Apparently a survey by insurance firm Direct Line for Business has thrown up the fact that many landlords are cancelling their insurance policies ‘to save money’. Presumably these are people who are signed up to their own insurance schemes (otherwise how would they know)? I could not find any mention of this on their web-site, however I did note that their landlord insurance does not cover lettings to students.

Maintenance insurance for agents
Another one on insurance. Apparently many letting agents are carrying out maintenance work on rented properties without being properly insured. Agents are warned to watch out for this and not do any maintenance work unless they are sure they are covered. Apparently many office policies for letting agents exclude cover for this, meaning that agents won’t even be covered for changing a light bulb. You are warned!

Student stereotypes
Finally research by Rookwool shows that actually students are not as rowdy as everyone thinks, as there is only one complaint made for every 557 students. Many student are actually more concerned with studying hard and getting a good degree, “and arguably may have more to fear from the noise generated by the rest of the town“.

“We cannot provide home insurance to lodgers or paying guests because you [the policyholder] are giving access and responsibility for the security of your house to someone you do not know,” said a spokeswoman for esure, “If a policyholder takes in a lodger without telling us, their home insurance is potentially null and void because withholding this information counts as non-disclosure.”

Other insurers say the same. For example the Bank of Scotland: “If a policyholder did so [rent out a room] without informing us, this could invalidate the cover“. Even if you are covered, an insurer is likely to refuse to pay out against losses from burglary, if there is no evidence of forced entry.

So what should you do? Here are some suggestions:

Tell your insurers
This is probably the most important thing. If you can show that your insurers were told, preferably in writing, that you were going to take in a lodger, and they did not warn you that your policy was at risk, you will have a good chance of successfully challenging any non payment of claims on that basis. Make sure you contact your insurers in good time, so that if they say that you will no longer be covered, you have time to find another insurer before the lodger moves in.

Carry out checks against your lodger
You should of course be doing this anyway. You need to take references and consider also getting a credit check done (there are many companies online which will do this – you will find some listed here). Make sure you double check that referees actually exist, and that the telephone number given is not that of a friend of the prospective lodger! For example employers details can be verified by looking in the telephone directory or online.

Get your lodger to sign a letter confirming they have no unspent criminal convictions
Many landlords will find it very embarrassing to question potential lodgers (who they may then be sharing a home with) about this. Probably the best thing to do is just give them a form to sign, saying that it is a requirement of the insurers. Of course if the insurers themselves produced a form for landlords to use, this would make things easier.

It seems from the Observer article that insurers will expect landlords to question lodgers about unspent convictions. Zurich told them: “We do want a homeowner to ask tenants about criminal convictions because you have to declare, at inception or renewal of a policy, if anyone in the property has a conviction. We could decline a claim and void a policy because of non-disclosure. If the lodger lied to the homeowner we would look at it on a case-by-case basis. If the policyholder can prove they have a process including written confirmation, this is as much as they can do.”

Find another insurance company if necessary
If your current insurer is proving difficult, this does not mean that you will be unable to find cover. For example companies which specialise in landlord insurance may be able to assist. If your lodger admits to a past conviction, but you still want to let a room to him, the charity Unlock (the National Association of Reformed Offenders) may be able to help you find an insurance company prepared to offer cover.

In conclusion
It is very important to be aware of this problem and to deal with it when taking in a lodger, Otherwise you may be in a position of suffering losses but without being able to make any claim against your insurer.

(NB All quotations are taken from the Observer article)