How Will the New Subletting Clause Affect Landlord Insurance?

In the small print of the 2015 Budget under the “support for the sharing economy” heading is a clause that will allow tenants the freedom to sub-let. In a nutshell, what this new clause does is prohibit private landlords from ruling out short-term sub-letting in their tenancy agreements. This clause appears to be beneficial to tenants, but how will it affect landlord insurance? Some experts are calling it a “recipe for disaster”.

Unanswered Questions

Landlords still have plenty of questions about how this clause will not only affect their landlord insurance policy, but their tenancy agreements. What happens if the tenant who is sub-letting the property leaves, but the sub-letting tenant stays? How can landlords check the immigration status of tenants if they no longer have complete control over who is living on their properties?

How the Clause May Affect Landlord Insurance

How will this new clause affect landlord insurance policies? That depends. Sub-letting introduces a number of different problems. Often, the rating structures for these policies are primarily based on the type of tenant living on the property, and how many are present. Insurers also place a higher risk on the student tenants. Some may not even offer cover for students.

Landlords will have a difficult time answering the risk question accurately and disclose details about their tenants if they no longer have control over who is occupying the property.

With tenants having the ability to sub-let without restrictions, it may make it difficult for insurance companies to offer adequate cover. In some cases, the landlord may find it difficult to find appropriate cover, or it may be out of their budget range if a tenant is sub-letting to a high risk tenant.

Detrimental to the Rental Industry

Many experts are saying that the clause could be catastrophic for the rental industry. With subletting scams on the rise in the private sector, things will likely get worse if the clause remains intact. In one particular scam, tenants let a property, but have no intention to actually live on the property. Instead, they transform common living spaces into extra bedrooms, and sub-let those “rooms” out to other tenants. Each tenant signs a separate agreement, and when all is said and done, the “middle man” is making more money than the landlord.

By the time landlords become aware of the situation, damage from overcrowding has already been done. And because these were tenants sub-letting, repairs may not be covered under a landlord insurance policy. Ultimately, the damage caused can cost thousands. The tenants who hold the legitimate tenancy agreement are long gone by the time the landlord figures it out.

If the clause remains in effect, underwriters may just decide to charge a higher rate to every landlord in order to factor in the risks associated with sub-letting.

With landlords having to pay higher premiums on landlord insurance, many will simply opt not to purchase the cover and take a great risk in doing so. The government may rethink this move after facing so much backlash. From a landlord’s perspective, the clause seems to only benefit tenants who are looking to scam landlords.

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