A serious fire, flood or escape of water can make a rental property uninhabitable for months. The building may need to be dried, stripped out, surveyed and rebuilt before the tenant can safely return.
During that time, two separate financial problems can arise. The landlord may lose rental income, while the tenant may need somewhere else to live.
Landlord insurance may include loss-of-rent cover, alternative-accommodation cover or both. However, the two terms do not mean the same thing, and neither should be assumed to apply automatically.
What does loss-of-rent cover protect?
Loss-of-rent insurance is designed to protect the landlord’s insured rental income when qualifying damage prevents the property from being occupied or let.
It may respond, subject to the policy wording, when an insured event such as a fire, storm, flood or escape of water makes the property uninhabitable. The insurer will normally need to accept the underlying property-damage claim before considering the associated loss of rent.
The cover is intended to address income the landlord would otherwise have received. It is not the same as rent guarantee or rent and legal protection, which deal with risks such as tenant arrears and possession proceedings.
Loss-of-rent cover would not ordinarily be expected to pay simply because:
- A tenant has stopped paying
- The property is empty between tenancies
- The landlord is carrying out planned improvements
- The property cannot legally be let because of an unrelated licensing or compliance issue
- Maintenance or gradual deterioration has made the property unsuitable
- The landlord chooses to leave the property unoccupied after repairs are complete
The interruption generally needs to result from damage covered by the policy. Definitions, exclusions and claim conditions still apply.
What does alternative-accommodation cover protect?
Alternative-accommodation cover is intended to meet specified reasonable costs of housing occupants elsewhere when insured damage makes the rental property uninhabitable.
Depending on the policy, this may include the cost of temporary rented accommodation and, in some cases, associated expenses such as storage or moving costs. The policy will define whose accommodation can be funded, which expenses qualify and how much the insurer will pay.
Although the practical benefit is that the tenant has somewhere to live, the insurance contract is normally held by the landlord or another named policyholder. The insurer may therefore require the claim and expenditure to be managed through the insured rather than paying whatever arrangement the tenant chooses.
Landlords and agents should contact the insurer before making long-term commitments wherever possible. An insurer may want to approve the proposed accommodation, duration and cost.
They are not interchangeable
Loss of rent and alternative accommodation address different losses:
- Loss of rent concerns the landlord’s missing rental income.
- Alternative accommodation concerns the reasonable cost of temporarily housing the occupants.
A policy can include one without the other. It can also place different limits, conditions and maximum payment periods on each.
For example, a buildings section might provide alternative accommodation for tenants but exclude rental income unless the landlord has selected a separate loss-of-rent section. The existence of rehousing cover would not automatically give the landlord a right to claim the rent instead.
Similarly, a loss-of-rent payment does not necessarily mean the insurer will also pay the tenant’s hotel or temporary rental costs. The tenancy arrangements, legal responsibilities, policy wording and actual expenditure all need to be examined.
Who is responsible for the tenant’s housing?
Insurance does not decide the landlord’s legal responsibilities to the tenant.
The position can depend on the tenancy agreement, the cause and extent of the damage, whether rent remains payable, local housing law and the part of the UK in which the property is situated. England, Wales, Scotland and Northern Ireland have different tenancy frameworks.
Landlords should not assume that the tenancy automatically ends, that rent automatically stops or that the tenant must arrange and fund accommodation without assistance. Equally, an insurance clause does not necessarily create a direct right for a tenant to demand any accommodation they choose.
Legal advice may be required where the parties disagree about rent, rehousing or the continuation of the tenancy.
Check how the financial limit is calculated
Loss-of-rent cover may be expressed as:
- A fixed monetary amount
- A percentage of the buildings sum insured
- A stated number of months’ rent
- The annual rent multiplied by the selected indemnity period
The landlord needs to know which method applies and whether the figure reflects the property’s current income.
A limit based on an old rent may be inadequate after rent increases. An HMO or multi-unit building can also create a much larger exposure than a single tenancy because the total rent from every affected room or unit may need to be considered.
Alternative-accommodation cover may have its own monetary limit or may share a combined limit with loss of rent. If both claims arise from the same incident, payments made for one could reduce the amount remaining for the other.
The schedule and full wording should be read together. A prominent figure in the schedule may still be subject to a percentage limit, time restriction or definition elsewhere in the policy.
Why the maximum payment period matters
The maximum indemnity period is the longest period for which the policy can pay an insured income loss or specified expense. It is not a promise that every claim will be paid for that long, and it does not guarantee that repairs will be completed within the period selected.
A twelve-month period may initially sound generous. In a serious claim, however, time can be consumed by:
- Investigating the cause of damage
- Making the building safe
- Drying and decontamination
- Structural surveys and design work
- Planning or building-control requirements
- Obtaining tenders and appointing contractors
- Shortages of labour or materials
- Specialist conservation work
- Resolving issues affecting adjoining properties
- Reinstating utilities and safety systems
- Completing licensing or compliance work before reoccupation
A major fire, extensive escape of water, flood or subsidence claim can take considerably longer than expected. Once the maximum payment period ends, the insurer will normally stop paying even if the property is still not ready to occupy.
Landlords should choose the period by considering a realistic worst-case reinstatement, not the duration of an ordinary repair.
Establish the actual rental income
The insurer may ask the landlord to demonstrate the rent that would have been received. Useful evidence can include:
- The signed tenancy agreement
- A rent schedule or ledger
- Bank statements
- Details of rent reviews
- Records for each room or unit
- Evidence of occupancy immediately before the damage
- Previous accounts or management statements
- Correspondence concerning continuation of the tenancy
The calculation may not always be the simple headline monthly rent multiplied by the number of months. Policy definitions can address savings in expenses, rent received from another source, partial occupation and the date from which the loss begins.
If only part of a building is unusable, the insurer may assess only the income attributable to that part. If repairs could reasonably have been completed earlier, avoidable delay may also affect the amount paid.
Alternative accommodation must normally be reasonable
The word “reasonable” is significant. The insurer may consider the household’s needs, the location, the expected repair period, local availability and the cost compared with suitable alternatives.
Relevant factors might include:
- The number and ages of occupants
- Proximity to schools or employment
- Disability and accessibility requirements
- Pets
- Furnished or unfurnished requirements
- The likely duration of displacement
- Storage of the tenant’s belongings
- Whether a hotel or temporary rental is more appropriate
An emergency hotel may be appropriate for the first few nights but unnecessarily expensive for a six-month repair. Conversely, the cheapest available property may be unsuitable for the household.
Keep invoices, tenancy documents and evidence of any additional costs. Do not assume that meals, travel, deposits, utilities or every cost associated with moving will be covered.
Avoid gaps and double recovery
Landlords should understand how rent, alternative accommodation and any other payments interact.
The same financial loss cannot normally be recovered twice. If the tenant continues paying rent while the insurer funds alternative accommodation, the landlord may not have suffered a loss of rent. If rent is suspended, the landlord may have an income loss, but the arrangements for rehousing still need to be checked separately.
The insurer should be told about payments received, rent concessions, tenancy changes and any contribution from another policy or party. Clear records help the insurer identify the actual loss.
Flats and block policies need particular care
Owners of leasehold flats may rely on a buildings policy arranged by the freeholder, management company or managing agent. That does not mean every individual landlord automatically has suitable loss-of-rent or alternative-accommodation protection.
The block policy may insure the building owner rather than every leaseholder’s rental income. Rental income may be optional, separately declared or excluded. Any alternative-accommodation clause may also identify who can claim and whose costs it covers.
A leaseholder who lets their flat should obtain the current policy schedule and wording, examine the insured parties and check whether their own rental interest is included. A separate landlord policy may still be required for contents, liability, loss of rent or other risks not adequately addressed by the block arrangement.
Report damage and likely displacement promptly
When serious damage occurs, protect people first and take reasonable steps to prevent the loss becoming worse. Contact the insurer or claims line promptly and explain if the tenant cannot remain in the property.
Before agreeing substantial expenditure, ask:
- Has the underlying damage claim been accepted?
- Is loss of rent included and what evidence is required?
- Is alternative accommodation included?
- Who is authorised to arrange it?
- What type and cost of accommodation will be approved?
- Do the two covers have separate or combined limits?
- When does each payment period begin?
- What is the maximum payment period?
- How will partial occupation or a return home affect payments?
- What updates and receipts must be provided?
Keep a timeline of conversations, decisions, repair progress and tenant arrangements. Delays should be raised promptly with the insurer, loss adjuster or broker.
Review the cover before a claim
At renewal, landlords should check:
- Is loss of rent included or optional?
- Is alternative accommodation included?
- Who does each section protect?
- What event must occur before cover applies?
- Are the financial limits adequate?
- Are the limits separate or shared?
- Does the declared rent reflect current income from every unit or room?
- Is the maximum payment period realistic for a major loss?
- Are HMOs, short-term lets or other occupancy arrangements correctly described?
- For a flat, does the block policy protect the individual landlord’s interest?
NetRent works with Clear Insurance Management and its experienced property-insurance team to help landlords examine these details properly.
If your landlord insurance is approaching renewal, send us your existing documents. We can review the cover, limits, maximum payment periods, conditions and premium before discussing appropriate alternatives.
Telephone: 01352 721300
Email: insurance@netrent.co.uk
Loss of rent protects income. Alternative accommodation addresses rehousing costs. A landlord needs to know whether both financial risks are properly covered before the property becomes uninhabitable.
NetRent does not provide legal advice. This article represents our general understanding of the landlord insurance and rental property market and is provided for information only.