Update from Pikl on Coronavirus (COVID-19)
There are many reasons why the market for subletting is currently fraught with difficulties and risk. It’s every landlord’s nightmare to find their property damaged only to find they are not covered by their insurance because their tenants breached the terms of their tenancy agreement and consequently landlord’s insurance cover. In contrast, many tenants struggle to pay the bills without taking in a guests or flatmates just to make ends meet, many of them breaching the terms of their tenancy agreement in the process. Here are some reasons as to why the right insurance can bring these practices out in the open to the benefit of everyone involved.
Allowing a tenant to sublet, means the landlord effectively loses a level of control to screen the people being let into their property, this could mean someone they would not have decided to let to, gains access to their property. This additional risk is one of the key reasons that landlord insurance excludes subletting and there is usually a standard clause in most tenancy agreements prohibiting subletting. Many buy-to-let mortgages do not allow these types of practices to occur. But with the Council of Mortgage Lenders publishing results in 2016 showing that almost half of landlords surveyed owned their own property outright, and with the loss of higher rate tax relief on mortgage interest, this is becoming less of a problem as the buy to let market mortgage dwindles. A more wide-ranging issue is that lack of cover that insurance companies are willing to provide. This means landlords don’t have the cover they need, which is a big disincentive when it comes to subletting.
There may many reasons why a landlord might be prepared to sublet. Reduction in management is one consideration - rather than having to constantly background check every new flat mate that enters their property, some landlords may find a more guaranteed income stream appealing by allowing a trustworthy, long term tenant to act as the main tenant and allowing them to sublet for a housemate from time to time. This guarantees money coming in and is less hassle for the landlord. Some tenants may want to house swap as a cheaper way to go on holiday, or choose to list their property online so that they can pay the rent whilst they are vacationing abroad. Again, with a trustworthy, long term tenant this might be ok and the landlord may be able to share in some of the profits. Equally there has been a rise particularly in London of Host Management Companies such as Lavanda and Airsorted, who can securely manage this process of short term lets, screening guest coming into the property on behalf of the tenant and providing a controlled and protected process for landlords. So, should we be reconsidering our view that all subletting is bad?
Most mainstream insurance policies ban subletting altogether. In the unlikely event they agree to continue to cover you doing this, you may find that cover is severely restricted. Key aspects of cover such as theft or malicious damage, are likely to be missing as there is usually only cover for these types of things if there has been forced entry. Why do they do this? Most insurance premiums are based on property type and occupancy. When a tenant sublets, there is less predictability about who occupies the property, which can significantly increase the risk. As a result of this, many landlords that do allow subletting, keep such activities quiet so that they don’t fall foul of their insurers if something goes wrong. For tenants that are not allowed to sublet, landlords are often kept in the dark altogether so that they can avoid eviction.
With The Guardian reporting in June 2017 that the average London rental price at just over £1,500 a month, rental prices are a high cost. Combined with rising inflation, renting a place in the capital has become unaffordable for many despite prices starting to fall. With analysis by the Financial Times showing more and more Londoners living outside the capital each year, the picture we can see is a stark example of the national housing crisis. So how can insurance and the sharing economy solve this?
Unlike mainstream home insurance policies, the Landlord’s Tenant Host Protection Insurance Pikl provides, covers landlords for incidents such as theft, vandalism, accidental damage and legal liability and expenses as a result of subletting or short-term hosting activity in their homes. Landlords that allow subletting can have peace of mind knowing they are protected, which can lead to more flexible and mutually beneficial relationships with their tenants.
Pikl hope this cover will enable a level of transparency, where landlords and tenant should be able talk openly about subletting with tools they can put in place to make this work, such as by using a Host Management Company. By providing the means to bring these activities out in the open, this will encourage others to do the same, allowing more opportunities for people who need short term accommodation, making use of spare rooms and giving relief to tenants who find that their monthly rent takes up a considerable chunk of their regular pay cheque. By using existing resources to fill up available rooms, this should make accommodation more affordable.
In 2015, the government announced it was going to introduce measures to help people in the sharing economy. One of these proposed pieces of legislation was to ban landlords from outlawing subletting as a way of encouraging the use of existing resources to combat the housing crisis.
At the time of this announcement, many landlord organisations expressed their concern that this would encourage the use of ‘rent to renting’ scams, a practice where the main tenant never lives at the property, poses as a landlord or estate agent and then rents out the property to unsuspecting sub-tenants at a higher price, either pocketing the difference or in some cases not paying the real landlord at all. In the worst cases, some landlords came back to find the locks had been changed and their property trashed.
Whilst damaging to the local rental market, such practices should be seen as symptoms of the housing crisis that the government should be legislating for. This should not detract from the genuine needs that subletting can facilitate for everyday landlords and tenants. Moreover, those landlords concerned about rent to renting can have peace of mind knowing they will be protected if they choose the right insurance cover, even if they had no knowledge that such activities had been going on. Pikl’s Landlord Tenant Host Protection Insurance can protect you should such incidents arise as a result of hosting or subletting activity without the landlord’s permission. Banks that offer buy to let mortgage may also have confidence knowing that their investment if better protected.
In our Airbnb guide, we discussed how some sharing platforms do provide some level of cover. But can a landlord rely on this in case a tenant decides to list the property on one of these websites? In our, article, 'Is Airbnb's Host Guarantee enough for you?' we discuss the potential pitfalls.
Unlike most mainstream home insurance policies, Pikl’s cover can protect you against theft, vandalism, accidental damage, legal liability and expenses as a result of tenant hosting activity or subletting. We can also cover lock replacement up to £1,000 should subtenants lose your keys and up to £2 million worth of liability cover if they get injured. For landlords actively allowing subletting or for those wanting more protection, our supplementary cover can give you peace of mind. Get a quote with us if you are looking for extra cover.