Failing to do tenancy background checks could be viewed as negligence, and landlord insurers can potentially take legal action against a property manager or principal to recover lost money.
EBM RentCover general manager Sharon Fox-Slater said thorough background checking is one of the most valuable and important services a professional property manager can offer.
“If a property manager fails to do a background check, the property investor would still generally be protected by landlord insurance,” she told Residential Property Manager.
“However, failure to do a background check could in some circumstances be considered negligence – and the insurer could take legal action against the agency, the PM or the principal to recover the money they paid the landlord.
“If a particular agency continually had clients with exceptionally high rates of claims due to poor procedures, insurers may decide not to offer cover to the landlords using that agency – or to charge for more cover,” she added.
Ms Fox-Slater said agencies with poor records and procedures may also find themselves facing higher premiums for their professional indemnity insurance.
Also speaking to Residential Property Manager, Trading Reference Australia (TRA) director Gai Williams said the clever PMs understand tenancy background checks are a requirement for them to do the best by their landlords, and also for insurance reasons.
“They have got to be seen to be doing the best they can in order to claim insurance,” she said.
“You have to think about litigation. If a landlord knew that you had access to a database such as this and you didn’t use it, or you were a member and didn’t do a search on a person that was listed and was having great problems – owed them a lot of money with damage etcetera – they could sue the agency for not using this system.
“As far as the property managers are concerned, for their own safety and their own job security they should be doing these searches,” she added.
Ms Williams said it is all about “crossing your Ts and dotting your Is”.
“It may never happen, but it has – I have been in the industry for a long time so I do know,” she said.