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New insurance removes renting risks for landlords

01 November 2006 Susan Ford

Current South African legislation has 1.2 million landlords of rented domestic properties facing serious financial risks from defaulting tenants including lost rent as well as costly and complicated legal procedures when eviction is necessary or tenants abscond.

"Todays landlords need a financial safely net so they can pay their bonds, levies and legal costs when a lease arrangement turns into a nightmare - and we're going to give it to them,"  says Rob Kelly, MD of Hollard Insurance Partners who have launched a new Landlord Protection Policy in partnership with Tenrisk Underwriting Managers.

The insurance guarantees legal fees up to R40 000, handles all legal procedures and complicated evictions and provides up to three months rent during an eviction and one month if the tenant has absconded.

"People who own rentable second homes have taken a positive quantum leap in their  financial empowerment process but defaulting tenants can put that asset at risk.  Hollard is in the asset protection business so we have designed an insurance policy that will give landlords the protections they need to shield a second home, or more, from financal risks. Hollard believes that in future this type of insurance will become standard practice when leasing property."

Kelly says research reveals that depending on area, type of property and owner profile, from 50 to 75% of leased properties are personally managed by the owners and significant numbers of property purchases have been bought to let.

"Recent horror stories of defaulting tenants who don't vacate their property have landlords facing the harsh realization that their monthly rental income streams are no longer secure. Now, for as little as R35 plus 1% of the rent, they can remove the risks of renting domestic dwellings - whether they work through estate agents or handle the leasing themselves. To qualify there must be a written agreement but there is no maximum or minimum rent prescribed."

According to Eddie Schoch, head of Tenrisk Underwriting Managers, co-creator and distributor of  the Landlord Protection Policy:  "It is estimated that there are 1.2 million leased properties in South Africa. The affordable premium can be built into the rent and, in most cases, it will be tax deductible from rental income which could represent a saving of up to 40% - depending on personal circumstances and advice from tax consultants."

He says the legal position of South African landlords changed in 2002.  Until then they were provided with strong legal remedies against defaulting tenants. "However, this situation altered significantly in 2002 when the Supreme Court of Appeal made a ground breaking decision that sent shock waves through the property market. 

"A piece of legislation that was intended to protect the homeless or squatters against harsh evictions was made applicable to ordinary relationships between landlords and tenants. This decision amended common law remedies available to landlords against defaulting tenants to such an extent that a complicated new court procedure now needs to be followed by landlords to obtain eviction-orders," Schoch explains.

The following are current realities that can become a nightmare for landlords:

*  The eviction process can be costly and financially crippling compared to the rental value
*  Evictions are no longer straight forward
*  Following eviction, a separate civil recovery process is also necessary to recover the defaulted rent
*  Bonds, levies and other costs usually need to be paid while this process grinds along

Schoch says "The Tenrisk Landlord Protection Policy makes sure that landlords remove the risk of losing a revenue producing asset which could be part of a retirement plan, a family inheritance or long-term wealth development program."

For more information contact 018 297 8831 or email info@tenrisk.com  

 

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