Dealing with insurance
There are two types of insurance to consider here – the landlord’s insurance and the tenant’s 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. To find out more about landlords insurance see my free online course here and the podcast here.
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 rules (discussed on days 16 and 17), it will be considered unfair if you try to make tenants responsible for complying with terms and conditions they have never seen. So you need to provide them with a copy of, 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.
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 tenant’s possessions. They need to be made aware of this and told that they need to arrange their own cover. It’s a good idea to specifically say this in the tenancy agreement.
Tenants insurance is not normally that expensive. It will not only provide cover for their possessions but should also cover emergency accommodation costs if their rented home becomes uninhabitable for any reason (eg fire or flood).
Although I don’t think there is a problem with landlords recommending insurance to tenants, they are not allowed to *require* tenants to buy specific insurance products (from which they are no doubt getting a commission). Any contract term which requires tenants to buy specific insurance products from you will be void for unfairness. So don’t do it!
One or two important points for landlords:
1. Make sure your tenancy agreement and insurance policy dovetail. For example, if the policy terms require the insurer to be informed if the property is left vacant for more than 10 days, you do not want a tenancy agreement which says the tenant is to inform the landlord if the tenant is going to be away for more the 15 days.
2. It is essential to exclude from the tenant’s reparing obligations any damage cause by an insured risk. A typical clause (offered by way of example only and not as a precedent) may read:
“To keep the interior of the Property in good repair except that the Tenant is not obliged to make good any damage caused by a risk against which the Landlord is insured at the relevant time unless the insurance moneys are withheld because of any act or omission of the Tenant”
It is not unknown for landlords and agents to read such a clause and declare: “I’m not having that!” and to delete the words from “except” onwards. Quite the wrong thing to do. The words protect both landlord and tenant. The point is that insurance is a contract for indemnity and the insurer can withhold payment until the landlord shows he cannot recover the cost of repair from the tenant.
3. If the insurance covers loss of rent in the event of damage the tenancy agreement must contain a rent abatement clause. It is the indemnity point again.
Re point 2
Are you saying that if the damage is caused by the tenant and insurance covers tenant damage and the cost of repair is £100 and the excess is £300, then the landlord cannot recover the £100 from the tenant and has to suffer the loss?
The question of excess can be dealt with separately. It is not unreasonable to make the tenant pay any excess if he is responsible, so long as the amount is not unreasonable. As a rule of thumb I would say that a landlord should go with the standard excess which the insurer offers for the insurance of a single property. The landlord should not be looking to reduce the premium by increasing the excess. The amount should be notified to the tenant. It is almost certainly an unfair term to make the tenant liable to pay the excess where the tenant is not responsible for the damage.
@Lawcruncher I’m not sure about not making the tenant liable if the risk is insured. The insurance payment may be withheld because of something done by the landlord – for example accidental underinsurance.
Not all insurers will withhold payment if the tenant is also liable. Some will pay out to the landlord and then chase the tenants themselves.
Bear in mind also that there may be different excess sums for different perils.
We can divide damage into three categories:
(a) damage which cannot be attributed to the tenant
(b) damage which can be attributed to the tenant but which is accidental
(c) damage which can be attributed to the tenant but which is not accidental
For BTL:
What is needed in the repair clause is to ensure that the tenant is not liable for types (a) and (b) and is liable for type (c) but only if the insurers decline to pay up.
(Subject to my observations above on reasonableness) what is needed in the clause dealing with excess is to ensure that the tenant is not liable to pay the excess for type (a) but is liable for types (b) and (c).