Loss of rent is the greatest financial risk for landlords—and Christmas is to blame, states new research from Terri Scheer Insurance. The landlord insurance provider’s figures show that 34% of claim types paid during the 2015-2016 financial year were for loss of rental income.
During the last financial year (from December to March), there was a 26% increase in loss of rent claims.
“From our experience, the higher than average frequency of loss of rent claims is due to two key reasons,” said Carolyn Parrella, executive manager at Terri Scheer Insurance. “Tenants often put gift giving and Christmas spending ahead of paying their rent and utility bills. Money is tight and their rental payments fall to the wayside.
“It takes two to three months for this to show as the eviction process needs to take place prior to a claim being lodged. Unfortunately, this can put significant financial pressure on the landlord and leave them out of pocket once the mortgage and other costs are paid.”
According to Parrella, the new school calendar also prompts a spike in the loss of rental income.
“From anecdotal evidence we know that many families break their rental agreement, abscond the property and move to different suburbs for the new school year,” she said. “However, by maintaining a strong, positive relationship between tenant and landlord, the tenant may be more inclined to advise if they are looking to relocate.
“This can give the landlord an opportunity to proactively seek a replacement tenant and reduce the amount of time their property is untenanted. It also goes to show that landlords should not be complacent when it comes to protecting their rental income.”
Parrella encourages landlords to consider specially-tailored insurance policies to minimise any potential losses.
“If a tenant misses a few weeks of rental payments, a landlord can suddenly be out of pocket by $1000 or more. However, often for just the cost of a cup of coffee each week, landlords can protect themselves from this financial stress with insurance.
“Good policies should cover landlords for risks like malicious damage and accidental damage by a tenant and potential legal liability should a tenant or their guests injure themselves [on] the property.”