EPMEPM: Best Practice & Legislation

Vacation rentals & insurance: Sharon Fox-Slater

The way a landlord rents their property can have a big impact on the kind of insurance they will need and many landlords are exposing themselves to financial risk by failing to choose the right policy, warns Sharon Fox-Slater.

For many landlords with property in cities and prime holiday locations, the lure of the short-stay accommodation market is strong. Some choose to rent their property to holidaymakers, others may look for a corporate lease. Some have their property available to rent all the time, and some switch, looking to cash in during peak season.

Although the financial rewards can be lucrative, the short-term rental risks need to be carefully considered. Too often, owners are unaware that their normal home and contents insurance, landlord insurance or other insurance options simply may not cover them for damage or liability caused by a paying guest.

And what works for longer-term tenancies doesn’t necessarily work for the short-term market.

The risks facing landlords renting out property on fixed-term leases are not the same as those for holiday home owners. Properties rented short-term – be it a holiday let, corporate lease or through a share accommodation platform like Airbnb – need appropriate insurance cover and there are specific landlord insurance covers for each letting scenario.

While there are some aspects of landlord insurance that apply to both fixed-term and short-term rentals – such as owner liability or accidental or malicious damage to the building, fittings and fixtures – the different lease arrangements also pose unique risks.

Agents should check that their landlord’s short-term policy also covers these aspects:

  1. Contents
    Owners of properties being rented short-term need comprehensive cover for the home’s contents beyond the regular fixtures and fittings. Short-term rentals generally come fully furnished, with linens, crockery, cookware, and entertainment equipment – all of which can suffer damage or be pilfered by renters. Comprehensive contents cover is usually not applicable in other landlord policies.One of our short-term policyholders discovered the benefits of comprehensive contents cover when their holiday let went pear-shaped.Guests were staying at the property and held a massive party. The aftermath of the gathering resulted in the home being completely trashed, with malicious damage to carpets, bedding, towels, couches, plates/glasses, artwork, coffee table, outdoor furniture setting, dining room chairs and table. The successful claim for the damage and lost contents topped $9,000.
  2. Loss of rent
    Aside from contents cover, ‘loss of rent’ is a key area where the difference between insurance for short-term rentals and fixed-term leases can be crucial for landlords. Policies specially designed for the short-term market often provide some cover for loss of rent, but only if the property cannot be let due to an insured event, for example if the property is damaged and awaiting repairs or access is not possible. Given the nature of short-term rentals, where there is no tenancy agreement other than for holiday letting or similar short-term purposes, cover for lost rent, from factors such as default or broken leases, is not applicable.

It is a difference that turned out to be an expensive lesson for one RentCover policyholder.

The owner had an investment property which was being used as a holiday let and insured under a short-term policy. They then decided to let the property on a longer term basis and signed a tenant to a one-year fixed lease. However, the owner failed to change their cover from short-term to a policy for properties with tenancy agreements.

The tenant broke the lease early and the policyholder hoped to claim loss of rent but was unable to do so because breaking lease was outside the scope of their short-term policy.

If a policyholder is looking to change from a fixed-term lease to a temporary rental or vice versa, it’s important that they or their agent contact their insurer to switch to the right policy for the type of lease being used.

Having landlord insurance is a must, but making sure it is the right cover is paramount.

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Sharon Fox-Slater

Sharon Fox-Slater is the Executive General Manager of EBM’s RentCover, which insures 120,000 investment properties around Australia and creates covers specifically for the property industry. Sharon was also the first woman to become a Fellow of the National Insurance Brokers Association. For more information, visit rentcover.com.au.
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