Angst and uncertainty fills the air for landlords amid the COVID-19 pandemic.
Without any clear legislation or industry guidelines, landlords are left in the dark on what to do if their tenant suddenly stops paying rent.
Suburbanite CEO and market commentator, Anna Porter, acknowledges this grey area and understands the burden this can cause for some landlords.
Many are relying on landlord insurance to cover the lost rent if their tenant applies for a payment pause but Porter stresses that every policy is different.
“I urge you to absolutely speak with your insurance broker or insurance company directly and refer to your PDS,” she says.
“On the ground, we’re seeing that many policies state a claim will only be paid if the tenant is evicted or terminated by the tribunal or they leave without notice and default on payments after vacating with no warning.”
Generally, landlords will also need to be in a fixed lease period and follow the correct processes to be successful in a claim of this nature.
“like me, you’re probably thinking that the current COVID-19 economy doesn’t allow for eviction,” says Porter.
“This issue is that if tenants can’t be evicted for falling into arrears then many landlords won’t be able to lean on the rental default provisions in their policies, assuming they even have a rental default in the policy.”
We are starting to see a number of mainstream insurers place embargos on new policies for landlord insurances or rental default optional extras over, as a reaction to the government’s latest announcements around rental payment pauses and landlords being unable to evict tenants for falling in to arrears for 6 months.
“This includes some of the most well-known and reputable insurers such as TerriScheer and AAMI, to name a few,” says Porter
Anna Porter very explicitly stresses that every policy is different and that she is not an insurance expert so advises landlords to seek their own advice in this regard.
So, what can investors do if they want to check their cover or get new cover in this market?
“We strongly suggest working with an experienced insurance broker to get yourself out of the dark,” says Porter.
“They can compare a range of policies and different insurers and will generally be able to access more comprehensive policies that the average person cannot,”
“Most importantly, they’ll be able to understand and explain the policy wording to you and what you are and are not insured for.”
Many landlords might find themselves in a situation where they are already locked into a policy that does not cover the loss of rent.
“If and it is only an if, your tenant stops paying the rent, you should consider speaking to your lender for a payment pause if you can’t afford to cover the shortfall,” says Porter.
We must also acknowledge that not every tenant will stop paying rent.
Landlords are encouraged to speak with their tenants and based on goodwill work out a way forward.
Anna Porter shares some additional tips on what investors can do if their tenants stop paying:
- Speak with your landlord insurer to find out if you have any coverage under your policy for loss of rent.
- Speak with your bank about a ‘repayment pause’ on your home loan.
- Access any savings you have to cover payment in the meantime.
- Speak to your accountant about accessing any Government grants if you are a small business/sole trader to take pressure off.
- Work with your managing agent to see if they can help the tenant find a more affordable rental and reoffer your property to the market, if there is interest in your location (your managing agent will guide you on this).
- Stay close to your managing agent for real time advice on the market.
- If you are self-managing, look to get a property manager on board as their expertise in this time will be invaluable to you.
Porter also shares her 7 top tips for what to do if you start to fall behind on your mortgage:
1: Speak to your bank and try to get a payment holiday under financial hardship.
2: Don’t ignore the problem, it will only get you in deeper.
3: Get your accountant involved to do a crisis cash flow management plan.
4: Speak to local agents to determine if you can sell for a reasonable price and consider this as an option (no need to tell the agents you are in financial hardship). But also look at what else you can buy for less V’s renting and what that will cost you.
5: Don’t leave selling to the last minute or you will get a lower price. Leave yourself as much time as possible to sell and factor into your budget a descent marketing campaign.
6: Speak to your broker about keeping part of the loan facility open for your next purchase via other structures as you may not be able to borrow again as easily. But make sure you lower the overall borrowings to a level you can manage.
7: Consider renting your property out for 12 months while you get on top of things and renting something cheaper or staying with family for a period.