Here is a, rather short but interesting, question from James (not his real name) in the blog clinic:
Can a landlord include in the tenancy that the tenant takes out an accident sickness and unemployment insurance to cover the rent?
The answer to this is probably no, but I am not sure. The Office of Fair Trading made it clear in their guidance on unfair terms in tenancy agreements that a clause in the tenancy agreement providing for the tenants to take out insurance for their personal possessions would be unfair and therefore void.
But what about requiring them to take insurance to cover the rent? I have never heard of this. Is there such a policy? Generally it is the Landlords who take out insurance for this.
My feeling is that this is not something a landlord can require in the tenancy agreement. However I suppose he could perhaps refuse to take on as a tenant anyone who fails to take out such insurance before or at the time of signing the tenancy agreement. Then it would not be in the tenancy agreement.
What does anyone else think?
If the OFT or a Judge is making a decision on unfair/unenforceable terms in an agreement, then the first thing they’ll consider is whether the agreement is unbalanced by a clause that unfairly benefits one party to the detriment of the other. On that basis, forcing teh tenant to take out rent insurance does seem a bit one sided and I don’t think anyone would expect this to be included as a core term of a standard tenancy agreement.
However, if you really wanted to do it, you could just have it as a separately negotiated clause. The Unfair Terms in Consumer Contracts Regulations (1999) do not apply to separately negotiated clasues. You would have to make it clear this was indeed negotiated separately, e.g. send a separate letter before the agreement is signed discussing the clause and asking for their separate written agreement to it.
Surely, if the landlord wants rent protection insurance to ensure that he gets his rent paid then the landlord should buy it (albeit he will, of course, wish to set the rent at a level which is inclusive of the premiums) – although I can see the argument that the tenant would be the ‘best insurer’ in that he would be best placed [ie better placed than the landlord] to know how secure his job is or whether he might have any health problems which might progress to such an extent that he is forced to give up work. And, of course, he would be keener to get the best/cheapest quote. If the landlord is just going to be passing on the cost to the tenant via the rent he won’t really care what it costs.
My view remains though that if the landlord wants it then the landlord should pay for it. Getting the tenant to do so, so that he is paying ‘rent + insurance’ rather than ‘rent incl insurance’ seems like just a way to advertise the flat with an artificially low base rent figure.
As for trying to monkey around with the Unfair Terms in Consumer Contract Regulations via individually negotiated clauses I expect that the courts will be pretty wary of the attempt. Countrywide’s response to losing the Bairstow Eves v Smith case (http://www.bailii.org/ew/cases/EWHC/QB/2004/263.html) was to have their staff write in a figure for the uplifted rate of commission that they seek to charge when payment to them is delayed. Oddly they withdrew the case I was involved with rather than try to convince a judge that they had successfully circumvented the operation of the Regulations via their brilliant wheeze. Specific disclosure revealed that the estate agents seemed to be writing in the same 3.9% figure for the uplifted rate of commission into every contract – funny that.
What if a landlord said “deposit of 4 months’ rent”, or you may buy an insurance bond for a one of payment that will provide me with the same protection? The cost of the insurance bond will of course depend on the risk the insurance company thinks the tenant is. (A housing charity may wish to pay for the bonds of some homeless people)
(I can’t see any landlord trusting a tenant to keep up payments on insurance, so it will have to be one of payment the talent makes.)
Thanks for all your comments everybody.
@Ulan, taking a deposit of more than four months may be problematic – I did a post about this here http://www.landlordlawblog.co.uk/2010/06/28/why-can%E2%80%99t-tenancy-deposits-be-for-more-than-two-months-rent/