How to avoid slipping up as a landlord even if you’re accidental

Anew breed of accidental landlord is emerging on the back of the sluggish housing market – and they are stumbling into difficulties as their inexperience is exposed, experts say.

Some have inherited a property; some are moving because of a new job; and some have gone through the break-up of a relationship. All have been unable to sell their property in today’s slow housing market and have had to turn to the rental market as the only viable option in the short to medium term.

For those corralled by circumstance into becoming a landlord, quickly getting to grips with the differences between the residential and the buy-to-let sectors is important. This is particularly true on the thorny issue of insurance, according to John Blackwood, director at the Scottish Association of Landlords.

“We believe a lot of landlords are getting into the market without being fully aware of what they are taking on,” he said. “Many believe you just market the property, get a tenant and everything will be rosy. Unfortunately it is not always as easy as that.”

The first thing for any landlord to remember is that they have to be registered with the local authority before they can start renting a property in Scotland. For more information on registration visit www.landlordregistrationscotland.gov.uk.

The second crucial fact to appreciate is that a deposit is no substitute for contents insurance, as David Alexander, founder of estate and letting agent DJ Alexander, pointed out. “It is important insurance is in place. A deposit is there for damage. It is not there to cover leaks or if there is a legal problem,” he said.

It is also important that if people have been living in a property before letting it out, they inform the existing insurer about the switch. If they don’t, then the cover could be invalidated, with potentially expensive consequences in the event of difficulties.

Mortgage lenders insist on landlords having buildings insurance in place to protect against perils such as flood and fire and to cover the costs associated with a structural repair or even a rebuild of the property.

Where a property is damaged to the extent it is unfit to rent, insurance can also provide loss of rent cover to help mitigate the financial impact of the problem.

The next thing to look at is contents insurance and many landlords offering their property on an unfurnished basis fall into the trap of believing this is not necessary. However, while there may not be any of the landlord’s moveable possessions in the house, there are plenty of other items that the contents insurance covers.

“The contents cover will insure things like carpets, decorations and white goods and so just because the property is let unfurnished, it does not mean you do not need contents insurance,” said Alexander.

Marianne Heron, associate director at Rentguard, which provides landlords insurance, noted that contents policies are currently available from about £52 a year, although the rate offered will vary according to factors such as the sums insured, the location of the property and the tenants in place.

Rentguard offers cover to landlords providing for all types of tenants and this is another issue that landlords need to be aware of. Increasingly, insurers will not provide cover for tenants who are in receipt of social security and making sure the tenants match the terms of the insurance is essential if the policy is to be valid.

Similarly, if the property is empty between rents, then some insurers will drop the level of cover they offer after a certain period, normally 30 or 45 days.

Landlords’ insurance can also provide liability cover in cases where tenants have an accident in the property and make a compensation claim against the landlord. Again it is worth checking whether this is included when weighing up the value of any policy being offered.

On top of the buildings and contents insurance policies, there is a wide range of legal protection products open to landlords.

These provide cover in the event of a dispute with a tenant, if there is a dispute with neighbours or if the government’s tax inspectors decide to investigate and the landlord incurs accountancy charges in presenting their accounts.

Richard Finan, a director at Arc Legal, also highlights a difference for Scottish landlords when it comes to evicting their tenants.

“In Scotland tenants have to be three months in arrears before you can bring a tenancy to an early end. In England and Wales it is only two months and so the financial risk for Scottish landlords is slightly higher,” he explained.

While the housing market remains desperately slow and it is difficult to sell properties, there will continue to be an influx of reluctant landlords to the buy-to-let sector.

They may be unwilling to go down this road, but once they are on it, getting the right insurance in place could prevent their foray into the rented sector from turning into an expensive nightmare.