Rent going unpaid is all too often a problem for landlords and property managers, writes Sharon Fox-Slater.
When such problems arise during a tenancy, they can quickly escalate and wind up in court, which is a time-consuming process that can end with the landlord having to pay unexpected legal bills.
Legal action may be the last path landlords and agents want to go down, but sometimes it’s inevitable. When a tenancy has turned pear-shaped and eviction/legal proceedings are the only recourse left to recoup loss of rent, the provision for “legal expenses” in some landlord insurance policies quickly comes into its own.
If the tenants are not paying their rent, it is often necessary to go through the formalities of a legal eviction. This is usually a requirement in the landlord insurance policy before you can make a claim for lost rent. After serving a notice seeking possession of the property, the next action is applying to the court for a possession order. Legal proceedings are not only stressful for everyone involved but can be expensive and time-consuming.
When an insurance company refers to “legal expenses”, they are talking about something very specific. They are talking about cover for the expenses a landlord incurs when pursuing the eviction of a tenant or making a legal claim for rental loss through the courts.
Expenses related to legal action and court proceedings to recover unpaid rent often include the engagement of a legal professional (solicitor or lawyer) and reimbursing the property manager for their time and expenses when representing the landlord at court.
The specifics and level of cover vary between insurance providers (and some may not include the cover or only have it as an optional extra), but in general, legal expenses policy provisions can cover three costs:
The costs associated with engaging a solicitor, lawyer or similar to represent the landlord in court/tribunal for the purpose of eviction or loss of rent claims. This includes application fees (to the tribunal) and warrant of possession fees in the states and territories where they apply.
The policy may cover reasonable legal expenses a landlord incurs when attempting to reduce their loss, or they must organise a legal defence.
It is important to understand that reimbursement for these expenses is conditional on the insurer having accepted a loss of rent claim and that the expenses have been incurred with the insurer’s prior written approval.
The costs will also only be reimbursed if they are incurred for the purpose of reducing the landlord’s loss of rent claim or filing a legal defence while the claim is being investigated.
Where the rental is managed and the landlord incurs costs because of the property manager representing them in court or tribunal to obtain a court order against the tenant, the agent’s representation fees may be reimbursed.
If a statutory authority (bailiff, sheriff or the like) is engaged by the landlord or property manager to evict a tenant, the costs may be covered. This may even cover costs to change door and/or window locks where the statutory authority ordered the locks to be changed.
No landlord or agent expects their tenant will default on the rent, but sometimes things don’t go according to plan and the only recourse is via legal proceedings. Without a specialist landlord insurance policy — one that includes legal expenses — the landlord could be faced with thousands of dollars in legal costs. The right cover means they can often recoup those costs.
Sharon Fox-Slater is the managing director of EBM RentCover.