Each owner who rents out their property is exposed to risks. Indeed, unpaid bills can accumulate over several months, thus creating a significant shortfall. In addition, the damage caused by unscrupulous tenants requires repairs, the costs of which are sometimes very high. In order to protect yourself effectively against these various risks, it is therefore strongly recommended to take out a guarantee for unpaid rents. Here, our experts explain how this coverage works and its advantages.
What is the unpaid rent guarantee?
Also known as unpaid rent insurance, the guarantee unpaid rent is a homeowners insurance policy who put one or more properties up for rent. It provides the latter with compensation in the event that the tenant is in default of payment.
In addition, depending on the needs of the insured, the contract may also include:
- Coverage of costs related to damage to equipment caused by the tenant, after the latter has left the premises;
- Litigation costs created by payment defaults. Here, the insurer bears the costs of the unpaid rent procedure, as well as the legal costs generated by a recovery procedure before the courts;
- Compensation for vacation rental periods or in the event of the premature departure of a tenant.
Who can take out unpaid rent guarantee?
Unpaid rent insurance concerns residential property only. Commercial premises, company accommodation, seasonal residences and secondary residences are therefore excluded.
Furthermore, it is prohibited from combining the guarantee of unpaid rents and a depositunless the tenant is a student.
Unpaid Rent Insurance, what are the owner’s obligations?
In order to guarantee the validity of the unpaid rent insurance contract, the rented property must be the principal residence of the tenant. In addition, the accommodation must be decent and fit for habitation.
In addition, the owner is required to take a number of measures:
Check the creditworthiness of the tenant
Before signing the lease contract, the landlord is responsible for ensuring that the tenant is solvent by requiring the following documents:
- A copy of his employment contract;
- Their last payslips or a certificate of aid;
- His Bank Identity Statement;
- His tax notices.
These documents prove that the tenant effort rate is less than 33% as provided by law. Note, however, that some insurers still tolerate higher effort rates.
Include a cancellation clause in the contract
The rental agreement must include a termination clause as of right in the event of non-payment of rent. Particularly for cases of joint tenancy, the landlord is required to provide for an indivisibility clause in the rent debt. In other words, even if one of the joint tenants is in default of payment, the balance due can be claimed from the other tenants, even if the latter have already paid their share.
When to apply the guarantee of unpaid rents?
Unpaid rent insurance can be triggered in the event of non-payment by the tenant. However, in accordance with the signed lease contract, the owner must send a follow-up letter accompanied by a formal notice to his tenant. This process must respect the deadlines set out in the contract.
If the letter remains unanswered, the owner seizes his insurer to apply the guarantee of unpaid rents. The entry must be accompanied by the following supporting documents:
- The tenant’s file;
- The inventory of fixtures of entry;
- Rent lease.
After receiving the filecompensation is paid to the owner within a maximum period of 3 months. With some insurers, payment is made from the first incident of payment.
If between the seizure of the insurer and the payment of the indemnities, the tenant pays the rents due, the owner has the obligation to inform his insurer.
In the event that the tenant does not make any payment, the insurer initiates recovery proceedings against him. A payment order within 60 days is then sent first. Then, if the situation is still not regularized, an eviction procedure can be initiated against him before a court.
Note that this procedure is carried out and fully paid for by the insurer. For the owner, it is therefore a solution of serenity.
How much does the unpaid rent guarantee cost?
The cost of the guarantee of unpaid rents depends mainly on the amount of the rent and the level of protection which you wish to benefit from.
However, as a general rule, the amount of the premium to be paid is between 2 and 4.5% of the rent for an individual contract, and between 1.5 and 3% for a group contract.
What you must remember
All in all, the guarantee of unpaid rents allows landlords to approach rental investment with more serenity. Of course, to take full advantage of the advantages offered by this form of insurance, it is important to respect the obligations incumbent on you and to take out a policy that actually meets your needs.
Also read: What is home insurance?