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Insurance
7 May 20

Insurers Criticised for Punishing Landlords

Insurers have been criticised for putting property investors with ‘Landlords Insurance’ in a compromised position if they do as Prime Minister Scott Morrison has recommended; negotiate reduced or deferred payments.

This is because most insurance policies only pay out for lost rental income if tenants have defaulted on their lease or landlords have issued them an eviction notice, but not if they’ve agreed to a rental reduction.

‘Some of the insurance companies are being irresponsible in that they are still forcing real estate agents to head down the eviction path when a tenant can’t pay some or all of their rent,’ Mr Kelly said.

“It’s a particularly stressful time for tenants who have lost employment, and it’s not fair for the real estate agent to be stuck in the middle of this.”

Mr Kelly said unless insurers show compassion and streamline changes to landlord insurance policies that account for the unique stresses of the pandemic, property owners stand to lose out.

“If [the system’s] not working now and we’re only at the beginning of this economic downturn, then Blind Freddie can see that it’s going to become even more problematic,” Mr Kelly said.

Anecdotally, it seems a proportion of tenants initially interpreted the Prime Minister’s comments about an ‘eviction moratorium’ as a ‘rent moratorium’, meaning that they either did not have to pay rent during the COVID-19 emergency, or any rent reduction negotiated with their landlord (or managing agent) would not need to be paid back after the emergency period.

Of the tenants that contacted First National Real Estate property managers to indicate financial difficulty following Scott Morrison’s comments, between 3% and 9% have completed proof of financial hardship documentation and negotiated rent reductions.

Some state governments have introduced rental subsidies to mitigate financial hardship, but most of these support initiatives cover only 3 or 4 week’s rent.

Professor Alan Morris, who specialises in urban and housing studies at the University of Technology Sydney says the federal government should consider a HECS-style scheme that would enable renters to access very low or interest free loans to cover the balance of any unpaid rent during the COVID-19 emergency period – the idea being that the debt could be paid off over 30 years, which he considers would be very helpful to tenants and landlords.

We encourage all landlords to contact us if unsure about their policy.

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