Protect yourself from non-paying tenants
Author: Susana Dias
(article published in Canarian Weekly 5th March 2010)
If you have an empty apartment and you’re afraid of renting it, you’ll be happy to know that there is a solution called Rent Guarantee Insurance that helps you evict non-paying tenants while the cover also protects your rental income. Whether you own a large portfolio of properties or have just a single investment, failed rent payment is a serious and common issue for many landlords, especially in times of recession or financial crisis.
Many of us started a new life in Tenerife and bought an apartment as an investment. But due to bad experiences or because we are afraid of non-paying tenants, a lot of the apartments are kept empty. A couple of clients have asked me for a solution for this problem, and here is a good product, from the European legal insurance leader ARAG, that can help to protect you from “legal and illegal squatters”.
Rent guarantee insurance is a form of insurance where, for a relatively small annual fee, landlords can protect against loss of rent, combined with Legal Assistance Insurance whereby the landlord's legal costs of recovering rent and/or evicting a non-paying tenant are covered. It is a very useful form of insurance, particularly where landlords let their property without a letting agent. This policy covers the landlord's loss of rent for anything up to a year, after the tenant has ceased to pay rent.
Basically, the primary benefit is peace of mind. If that’s worth 5% of your rental income, then this policy is a must. Even tenants who have been well-qualified in advance get sick or have accidents and cannot work (as well as the family upheaval of divorce or other personal problems). Another important aspect of the cover is that it will normally require that each tenant - or the guarantor - is subject to adequate references in advance of the letting.
Do not let go of a rent deposit, as it may cover your first month's rental payments. Hence rent guarantee is vital and can be got at a relatively low price. Rent guarantee insurance is not required by law, but in certain circumstances – for example, having to pay a mortgage on a rental property – knowing that the rent will be paid can save a fair amount of stress. Another important cover is that will defend your interest in case your tenant decides to make unauthorized fixtures and fittings in your apartment or commercial premises.
Should a tenant continue to occupy a leased dwelling and not pay rent, the insurance kicks in (after the first month which is covered by the deposit) and pays the rent for usually up to twelve months. Also covered is damage to the property and the removal of squatters, a 24-hour legal advice by telephone, landlord’s legal costs to pursue legal cases for damages or injunctions against tenants who breach the terms and conditions of their tenancy agreement.
Always, take adequate steps before renting out your property to a tenant. Based on the credit check of a tenant, you can decide if he is a good tenant or a bad one. Even a good tenant may sometimes create problems and default on rental payment. A tenant previously stated as a ‘model tenant’ can turn your buy to let investment into a nightmare. A bad break-up with a partner or unexpected redundancy are a couple of common problems that cause a tenant of good repute to go ‘off the rails’. Think, if your tenant defaults on their rental payments for 2-3 months would you be happy to take this on? Could you afford to fund the mortgage payments yourself? What if the tenant will not communicate with you or leave the property, you stand to lose thousands of euros in lost rental income and legal expenses incurred to fight the tenant and you should also take into account the time and stress involved.
Being a Landlord in Spain is really not easy. So, here are some real good reasons why you should consider getting a policy like this:
- You are entitled to a 24h Professional Legal Advice Helpline
- Pursuing costs of replacing missing or damaged items are covered
- You can choose freely the solicitor/lawyer that will handle your case
- The policy covers vandalism to the Building ( which is normally not covered by a standard home or Community Insurance)
- This cover applies not only to apartments you also can hire it for a commercial local, restaurant, shop, etc…
- If a third party causes damages to your apartment, commercial local or to the contents inside of your property, this policy will also reclaim the material damages
- In case a cleaning company or any other service company hired to maintain your property fails, this policy will also help to reclaim your rights
- If the tenant vandalizes your property or your commercial premises,the policy will assume the damages and the new value of the stolen objects.
As seen, Rent Guarantee insurance protects landlords whose tenants default on payment of rent. This also provides cover for costs and proceedings to evict the tenant from the rented property where applicable. If you are a landlord, you can benefit immensely with landlord rent insurance. If you are not protected against voids and non-payment of rent, including legal expenses and the cost of evicting tenants, then you are exposed to risk.For professional advice about Rent Guarantee Insurance, contact Susana Dias and her English Insurance team at 902 10 82 92
Susana Dias is the Director of TVT - the Zurich Insurance Agency legally inscribed at the DGS (Direccion General de Seguros Española) with the number C0530B38657193 - more than 15 years providing excellent service to residents in Spain.