Frank Newman: High standards imposed by insurance companies

It seems insurance companies are requiring landlords and property managers to be much more vigilant in the way rental property is managed. The implications are that if a rental is not managed in a manner that minimises risks to an insurer, then they risk having their claims denied.

Here are two examples from a landlord’s insurance policy package currently being promoted by a major insurer. The examples relate to the Landlord’s Obligations clause, and claims for methamphetamine contamination.

The landlord’s obligations clause states:

"You, or the person who manages the tenancy on your behalf, must:

(a) exercise reasonable care in the selection of tenant(s) by at least obtaining satisfactory written or verbal references, and

(b) collect:

(i) at least 1 week’s rent in advance, and

(ii) at least 2 weeks’ rent in the form of a bond that will be registered with Tenancy Services, or

(iii) any combinations of (i) and (ii) to a total of 3 weeks’ rent, and

(c) complete an internal and external inspection of the property at a minimum of 4 monthly intervals and upon every change of tenant(s), and

(d) keep a written record of the outcome of each inspection, and provide to us a copy of the record if we request it, and

(e) monitor rents on a daily basis with written notification being sent to the tenant(s) when the rent is 10 days in arrears. If rent is not received then a second letter must be personally delivered to the tenant(s), at which point in time it must be ascertained whether or not the tenant(s) is/are currently in residence, and

(f) make application to the Tenancy Tribunal for vacant possession…once the rent is 21 days in arrears."

They go on to say, "these general policy conditions now apply to the entire policy and can affect acceptance of a claim".

For example, if a property is damaged or meth contaminated, and the landlord or property manager  did not undertake a reference check for the tenant, did not collect two weeks bond money and lodge it with Tenancy Services, did not inspect the property at least once every four months and have paperwork to prove it, did not chase up rent arrears within 10 days, or did not file for termination of the tenancy if the rent is more than 21 days overdue; then the insurance company may reject a claim.

This will come as a surprise to most DIY landlords, and some property managers who could end up recompensing a landlord if a claim is rejected.

With respect to Meth' contamination, they state:

"You are not covered for any contamination damage that is cause or contributed to, by or in connection with you or your partner or any member of your family."

…and if a tenancy is for a term of  "90 days or less, there is no cover unless the contamination damage was caused by an accidental incident in connection with the manufacture, distribution or storage…of methamphetamine at the home."

So renting to a relative has an additional risk, and short-term stays are not covered. In the policy reviewed, the maximum for a meth' related claim was $30,000.

The message is clear - properties that are not managed to a professional standard risk invalidating their insurance cover.

Tax Working Group

On the political front, the government has announced Sir Michael Cullen will chair the new Tax Working Group (TWG). Michael Cullen is a former Labour Party MP and Finance Minister. His appointment is hardly a surprise to those who are of the view that the membership of the Group will be stacked to suit Labour's desired outcome. Other members of the group will be announced before Christmas.

Some $4m has been budgeted to fund the working group, which is expected to present its report in February 2019.  In announcing the terms of reference for the group Finance Minister Grant Robertson said, “Certain areas will be outside the scope of the review, including increasing any income tax rate, the rate of GST, inheritance tax and changes that would apply to the family home or land beneath it….At the moment the tax system appears unfair – for example, it doesn’t treat income from speculation in housing as it does income from work."

I can only assume Mr Robertson has no understanding of property tax. He does not seem to appreciate that gains made by property speculators are currently taxed as income - either caught by the brightline test which nets all residential investment property sold within two years (this is being extended to five years by Labour) or by the "intention" test, which has  no time limit.

He went on to say, “Individual wage-earners, businesses, asset owners and speculators should pay their fair share of tax. Right now we don’t think that is happening." It will be interesting to see how the TWG defines fairness, and its view on how much of the income tax burden the top 20 percent of income earners, who currently pay over 60 percent of all income tax, should pay.

Frank Newman writes a weekly article for Property Plus.