A residential property that is still bonded will carry an additional monthly premium for home owner’s insurance, or HOC. This insurance covers the owner against damages to the structure of the property that may be caused by natural causes such as fire, flooding, or wind.
Most home loan providers will not approve a bond without at least a standard HOC policy in place. Landlords should note, however, that such a standard HOC policy may not cover damages that occur when the property is occupied by a tenant or standing empty. What’s more, the policy may not cover loss of rental when the property cannot be occupied because it is too damaged.
Greg Harris, CEO of Chas Everitt Rental Properties, cautions that landlords need to check the terms of their HOC policy. “Make sure that the insurer knows the property is being let and is not owner-occupied,” says Harris. “This may affect your premium but paying a little more is better than finding out after a disaster has struck that your cover is not valid at all.”
According to Harris some HOC policies may also carry provisions preventing the owner from letting to a certain category of tenant, such as students or multiple single tenants as in a commune, for example. It is equally important that a landlord verifies these details, and adjust the insurance to accommodate specific requirements.
To ensure full coverage the landlord must also make sure that the sum insured represents the full replacement cost of the property, not its market value, which is likely to be considerably lower says Harris. “Both property values and replacement costs rise over time and it is your responsibility to ensure that your insurance keeps pace with these changes,” explains Harris, elaborating that it is also the landlord’s responsibility to keep up the HOC on the property, even after the bond is paid off.
If the rental property is in a sectional title scheme the HOC insurance issue gets even more complicated. In this case the HOC for the entire building or complex will be jointly paid by all owners or members, as a portion of the monthly levies being paid. A landlord must therefore be especially careful to invalidate the HOC that covers everyone else’s property too. The replacement value should also be regularly adjusted, even if it means an increase in the levies.
Harris reminds readers that if the property being let is furnished it is also the owner’s responsibility to take out separate household contents insurance to cover whatever furniture and household equipment is being used. A household’s contents that belongs to the tenant is not the responsibility of the landlord. The tenants must have appropriate cover in place to cover loss due to damage or theft in this instance.
Harris says that a landlord should also consider taking out a specific insurance policy that provides cover against the loss of rent and utility payments due to a tenant defaulting, as well as the legal costs of getting such a tenant evicted. Such insurance policies can be obtained through any reputable managing agent.
To a landlord, making sure that all policies are in place and correctly structured should really be a non-negotiable. It may increase monthly premiums slightly, but the cover and subsequent piece of mind it will give you, is really worth it.