So the last couple of weeks we have been writing a lot of business for the HMO insurance sector.
What has really caught my eye in the recent weeks is the increase on landlords handing over the control of their investment properties to management companies in exchange for guaranteed rental income over a contracted period, this period is usually over 12 months or more.
So what does this mean.
Well, instead of the landlord having to try and fill the home with tenants over lets say a 2 or 3 year period, the management company will step in, take full control, agree a contract with the landlord for X amount of money a month and will place in their own tenant types.
In addition to this the property management company will agree to return the home at the end of the agreed period in the same state as what it was, when it was handed over to them.
This all sounds great for the landlord as he doesn’t have to worry about rental defaults, evicting bad tenants, maintenance of the property etc. which in essence is true.
Potential Issues in using a Property Management Company
The only problem is that the landlord who is letting out the property must speak to the management company who is guaranteeing them rent and find out on what basis they will be letting the property and with what tenant types.
Remember … everyone always likes to blame the insurance companies for not paying out, so make sure you get it right up front, that the property set up to the exact spec it is being let out, or it will give the insurer the opportunity to walk away from any claims.
When sourcing insurance for HMO properties being let out to property management companies, you must agree terms with them initially as to who they will be placing in there, it’s imperative you do this.
Sometimes this is straight forward and the management company will just state that it will be let to a family who are working professionals …. now that’s the easy one!
The issues for the landlord start when they state that they will have local authority/DSS tenants inside the property. The issue with this is that the tenancy agreement is not between the landlord and the tenant and insurers hate this.
They sway away from this type of set up as the landlord has no control as to who they are accepting into the property.
Usually DSS tenants are ok, the landlord will vet them and if he is happy, they will form an agreement and this is called a non referral DSS tenant. The issue starts where there is no agreement between the DSS tenant and the landlord, in this type of case as it will be between the management company and the tenant. This is listed as a DSS referral tenant which may not be covered by your current HMO insurance.
Make sure you know who your HMO tenants are!
To increase the risk here what property management companies like to do, which is fine, is use all the bedrooms in the house for individual DSS tenants. This then makes the property HMO or a home of multiple occupation.
Whilst there is no issue with this in itself, as a landlord it’s your responsibility to make sure that you have the right insurance to cover a HMO property.
Taking this on a step further, the property management company may then let the property to Airbnb tenants on an HMO basis. This could mean foreign students entering the property for short periods as well as other international tenants on a short term stay basis.
Again whilst there is nothing wrong with this in essence as we know that Airbnb tenants are vetted well by Airbnb themselves. This isn’t an issue of having wrong or bad tenants in the property it’s about your insurance covering you for the particular type of tenant that you have in the property. You might find that your insurer is not flexible enough in their underwriting to agree this tenant type, if they are not advised up front and there is any type of claim from a fire to a small leak, they will 100 percent walk away from it leaving you to pick up the bill.
Property Management Company’s are great, but make sure you have the insurance cover to match
So as you can see handing over your property to a property management company is a great thing to do, but in turn you must be responsible to get your cover right and you do this by speaking to the property management company and making sure they confirm to you exactly what sort of tenants will be occupying your property.
At Goldcrest we are HMO insurance specialists so complex property owners risks like this are straight forward for us.We have dealt with many before, we understand how you the landlord operate and the property management company operates and in turn have the knowledge to tailor make the policy for you, declaring all the important facts in a material facts section, so everything is totally transparent to the insurer. This means that in the event of a claim you can feel confident that you will be getting paid. So yes there are potential issues in using a Property Management Company, it can be a minefield, but as long as you have great communication with them and have the correct insurance in place from a broker who specialises and understands your risk, there will need no cause for concern.
For a quote please contact one of our HMO specialists on 0208 440 7400.
