Here’s a scenario you probably haven’t give much thought to: what would you do if your tenant passed away in your property? Sydney-based property investor Stacy Mitchell had never considered it either - until it happened in one of his Brisbane properties. Sarah Megginson reports...
For Stacy, who owns several properties in Queensland and the UK, a large part of his investment strategy involves managing risk.
He and his wife Erin own a diverse range of properties, including houses and apartments, located in different suburbs throughout Brisbane. They use qualified property managers and have landlord’s insurance policies in place to cope with any potential issues.
One problem they never thought they’d face, however, was having a tenant die in their property.
“People die in their homes all the time, but you never really think about what would happen if your tenant died in your property,” Stacy says. “Our insurers, or at least the staff members I was dealing with, had never dealt with it before. Everyone at the insurance company was amazed by the story, and they couldn’t figure out which box to tick in order to pay the claim.”
How it all began
Stacy first started investing in property in 2004, when he bought a three-bedroom townhouse in the Brisbane suburb of Morningside.
“One of my friends had made a lot of money in Morningside – he had paid $140,000 for a place in 2001 and sold it a few years later for $385,000,” he explains.
“We thought property investing was a good idea, so we bit the bullet and followed suit.”
In 2005, Stacy and Erin bought a two-bedroom, two-bathroom apartment in Coorparoo, Brisbane, and the following year they invested in a two-bedroom, two-bathroom townhouse in Cleveland, just 25km from the Brisbane CBD.
“Then in 2007, we moved to London and I started working for a property developer,” Stacy explains.
Before they left, Stacy wanted to be sure that they had a qualified and experienced property manager in place to look after their investments while they were gone. “Our property manager, Jason Stevens from Ryan Real Estate, was really good. He’s managed each of our three Brisbane properties since we bought them, and he always has a new tenant lined up within 48 hours,” Stacy says.
So, the pair felt confident leaving their three properties in Jason’s capable hands while they were away.
In London, they continued to invest in property, buying a terrace house located next to the 2012 Olympic sitefor £330,000. “We converted it into a multi-let house, and to do that you have to officially apply for a Houses in Multiple Occupation (HMO) Licence,” Stacy explains of their ambitious building project.
“All up we spent around £70,000 on construction, and had it redesigned into a five-bedroom, four-bathroom share house. It does really well for us now and yields at about 10.1%.”
When the couple settled back in Australia in 2009, they were pleased to hear from Jason that their Brisbane properties were humming alongnicely. Rents were being paid on time, property inspections were flawless, and there were generally no issues withtheir investments.
First sign of trouble
One day, not long after Stacy and Erin returned from the UK, Stacy received a call from his property manager.
“Jason called up and said that for the first time ever, the tenant at our Cleveland property hadn’t paid therent,” Stacy says. “It was literally the first time she’d ever been even the slightest bit late, so we thought we’d give her the benefit of the doubt and wait a couple more weeks.”
Their property manager called several times to no avail, and eventually, after three weeks had passed, he told Stacy, “I’m going to go down there and make sure she hasn’t done a runner”.
Jason arrived at the property and knocked on the door, but there was no answer. He snuck a peak in the garage, and saw that the car was still parked there. Plenty of mail had accrued in the mail box, and the house still looked ‘lived in’.
It was clear that the tenant hadn’t left, as her belongings were everywhere – it was at this point that Jason became concerned.
“He didn’t have any keys with him, but he was knocking and knocking and getting no answer, so he went in through the back gate and poked his head through the window,” Stacy explains.
“He was instantly hit by the stench, which he said was really nasty, so he made the decision to climb into the house through the window to investigate. He found the tenant, deceased, in the bathroom.”
From what they can work out, it appeared that the tenant – a single pensioner aged in her 60s – had died in the shower.
“They believe that she’d had a heart attack when she was in the shower, and had just enough time to turn the water off before she fell out of the cubicle and landed on the floor,” Stacy says.
“The body had been there for almost three weeks by the time it was discovered – in the heat – and the house had been locked up.”
Their property manager alerted the authorities, and an ambulance was called to take the body away.
However, much to Stacy’s shock, they learnt that once the body had been removed, cleaning up the remainder of the waste was the responsibility of the family or the homeowner. “She hadbeen decomposing and literally falling apart for three weeks, so there was over 10kg worth of body waste to remove,” Stacy says.
Evidently, the tenant’s family wasn’t very close – when her sister was told of her passing, Stacy says she responded that it was “quite an inconvenience” – so it was up to Stacy and Erin, and their property manager, to organise the clean-up.
“We had to call in the crime scene cleaners to some in, as there were body bits in the grout, in the drain and in the waste traps,” he says.
“The smell had seeped through the carpet and into the curtains, so we had to try and get rid of the stench.”
The clean-up commences
Within the space of a week, Jason had organised the crime scene cleaners to remove and incinerate all of the waste, at a cost of around $2,000.
“Then we had to get the place steam cleaned, because the steam kills the germs. So we had all of the carpets and curtains throughout the entire property steamed,” Stacy explains. “We also had to power-flush all of the drains, and we had to have someone go in and specially scrub the grout and the tiles with a light acid mix to get everything out.”
With Jason coordinating the clean-up efforts, the home was restored to its original condition within a week. It took another five or six weeks to advertise the property and sign up new tenants.
“Jason was all over it really quickly – he kept a spreadsheet of all the costs and then sent the statements to our insurance company,” Stacy says. “He even paid the statements in the interim while we worked things out with our insurers, so he was pretty awesome.”
When they submitted their claim form to their insurance company, however, they encountered some resistance. “This is the interesting bit – it took six or seven weeks to get the place ready for occupation and to find a new tenant, so the loss of rent for that period was covered,” Stacy explains.
“However, there was no payout for the first four weeks’ rent, because that’s considered to be covered by the bond. And costs involved in removing the body waste were not included at all, because it wasn’t considered to be ‘an event’ that our policy covered.”
Essentially, their insurance company was only willing to pay out three weeks worth of rent, leaving Stacy and Erin to fork out thousands of dollars for the clean-up operation.
“My argument was that it was damage caused by the tenant – if the tenant went through and damaged the house, they would pay out for that. But in this case they said there was no malicious intent on behalf of the tenant, so they wouldn’t cover it,” Stacy says.
The couple have three investment properties in Brisbane and all of their insurance, including their building and contents policies, landlord’s coverage and car insurance, is handled through the same provider.
“I got onto the phone to them and said ‘look, we’ve been long-term loyal customers, and we want you to take another look at our claim’,” Stacy says. “A week later, they decided to make a gratia payment – less a $300 excess amount – to cover the cost of the crime scene cleaners.
“But they wouldn’t cover the rest of the cleaning. Steam cleaning the curtains and carpet, power-flushing the drains, acid-washing the tiles – none of that was covered, because it was considered to be general cleaning.”
Where to from here?
They have a new tenant in place, and now that all of the drama has passed, Stacy is concentrating on their next investment.
“Eventually I’d like to get my development company, Hillside Design and Build, off the ground, so by June this year I’ll be looking for investors to pool their funds into a small property fund, with a view to buying property around Sydney, Newcastle and Wollongong,” Stacy says.
Stacy worked for a similar development company in London, whereby several investors pooled their resources to fund larger-scale projects that none of them could have afforded on their own.
There may also be an opportunity for Stacy to leverage his experience of converting his London property in a multi-let dwelling, as these types of high-yield investments are definitely on his radar. “I want to build environmentally-friendly eco-townhouses, so I’m trying to raise about $1.5m to commence work on the first project, then we’ll go from there,” he says.
“We’ll structure it so that the minimum investment is $25,000 per person, so it’s ideal for those who can’t afford to buy a whole house but who still want to somehow invest in property.”
There’s also light at the end of the tunnel regarding their losses on the clean-up of their Cleveland property.
After receiving the tenant’s bond and payouts from their insurance company, Stacy and Erin are currently out of pocket by more than $2,500. However, there may be a way to recover the rest of the costs through the tenant’s estate, so their property manager is now pursing that option.
“I don’t know if we’ll end up getting anywhere, but it’s still worth a shot,” Stacy says.
What you should do in the event of a tenant’s death
- Check whether you have a current landlord’s insurance policy
- Clarify the insurance provisions to determine whether rent arrears and future rent loss are covered in the event of a tenant’s death
- In cooperation with the family, remove the tenant’s belongings
- Clean the property, with the aid of professional cleaners if necessary
- Source a copy of the tenant’s death certificate – insurance companies will require a copy of this, which might not be available until at least four weeks after the tenant’s death and can be sourced from the deceased person’s family
- Landlords who are unable to obtain a copy of the death certificate should contact their insurance company for further advice. Some insurers might accept a death notice from the newspaper in lieu of a death certificate
- Begin advertising the vacancy as soon as is feasible, keeping written evidence of the advertising activity to assist with the insurance claim
- When the property has been re-let, submit an insurance claim with relevant supporting documentation
- Act with care and sensitivity
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