LOSS OF RENT AND RENT DEFAULT INSURANCE THE KEY DIFFERENCES

LOSS OF RENT

Loss of Rent insurance is crucial for commercial property owners but is often missing from policies we are asked to review that we do not already manage.

Without it, property owners risk covering mortgage and maintenance costs with no rental income if their property becomes untenantable due to fire or storm damage.

When considering Loss of Rent cover, the following items must be considered:

Annual Rental Income plus Outgoings

The rental income received across all tenancies, plus the statutory outgoings such as  rates, land tax and water etc.

Indemnity Period

Worst case scenario; the Building is destroyed by a fire, you must consider the time it takes to demolish, remove the debris, get through planning/design, rebuild and re-tenant the Building – we typically see anywhere between 12 months and 36 months but recommend 24 as a minimum for most policies.

RENT DEFAULT

We are often asked what Rent Default cover is and how works. This cover responds when a tenant ceases to pay rent under their lease agreement, providing the necessary steps to remedy non payment have been made. Events could include a tenant suddenly vacating without notice, being legally evicted or simply stops paying rent.

Rent Default cover does not form part of a typical Commercial Property policy, and there are limited insurers in the market that offer this additional cover. Rent Default sits on top of a bank guarantee and responds as follows:

Weeks 1-4

The cover will not kick in during this time, think of this at as ‘excess period’.

Weeks 5-12

100% of the rent will be paid by insurance during this period.

Weeks 13-26

75% of the rent will be paid by insurance during this period.

Weeks 27 and beyond

0% of the rent will be received.

Tenants may vacate and break the lease agreement without warning - Rent Default cover can respond in such situations

IN SUMMARY

Put simply, the key difference between Loss of Rent and Rent Default cover is as follows:

Loss of Rent

Responds to Property Damage related events where the Building becomes uninhabitable.

Rent Default

Responds to tenant nonpayment related events, the Building does not have to suffer Property Damage.

Loss of Rent is one of the essential sections of cover for Property Owners – along with Building and Public Liability insurance. It is always concerning to see this coverage missing from policies and Property Owners can count themselves fortunate that this cover has not been called on when not included.

Rent Default cover is not available from most insurers, but it is an excellent additional option when available.

We always recommend having a relevant insurance expert review your insurance at least annually, or if the risk dramatically changes during a policy period – contact us for a no cost review on info@adaptrs.com.au