Tenants claiming benefit could invalidate landlords insurance

November 2011

Property owners are at risk of having invalid landlords insurance policies through their tenants claiming benefits without their knowledge and need to act positively to reduce their risk.

New Government figures have revealed that the number of private tenants in receipt of housing benefit is rising fast, with many areas experiencing increases in the past year of over 10%, and in London alone, a massive rise of over 32,000 households representing over 17%

This in itself is no more sinister than a reflection of the hard economic times the country has been enduring, with an increasing number of families qualifying for the benefit as a result of pressure on wages and increasing unemployment.

Non disclosure

However, a more worrying result of this is that private landlords insurance policies are rated based upon the status of the tenant residing at the property, with some insurers declining to insure where the tenant is in receipt of benefits. As such, a tenant in receipt of benefits or becoming unemployed is a material fact which the policyholder is obliged to disclose. This could leave landlords at risk of having their insurance policy invalidated should a change in their tenant's status not be reported to the insurer - something which might only be learned during an insurer's investigation into a claim.

How can I ensure the tenant advises me?

An internet search on the duty to disclose receipt of benefits to a landlord will quickly refer you to countless help and advice forums designed for tenants, and many will state that information regarding benefits can, and indeed should be withheld from the landlord if possible!

Indeed, according to an insurer's legal assistance helpline, there is no legal obligation for your tenant to tell you anything.

However, although it is not included in most Shorthold Tenancy Agreement templates, you can make provision to include a duty to disclose in your tenancy agreement. This will mean that by their own consent, your tenant is contractually obliged to disclose any change in status including receipt of benefits or unemployment.

Am I at risk?

In theory, a frightening proportion of landlord insurance policies are potentially at risk from this situation.

In some cases, the landlord is protected by a 'non invalidation clause' which states that if a situation beyond the policyholder's control occurs of which he has no knowledge, then this will not cause invalidation of his insurance contract (subject to other policy conditions), provided he advises the insurers as soon as he becomes aware. However, this clause does not appear on many insurance policies, and most landlords are subject to non disclosure threatening to void their cover.

With this in mind, we spoke to several major property insurers to gauge their reaction on a very general basis, to find out if this is a risk about which Britain's landlords should be concerned.

The reaction of the insurers was varied. Of the companies questioned, one confirmed that under their particular wording, the policy underwriting would not be adversely affected by the fact that a tenant started receiving benefits. Another explained that the policy underwriting would be affected, but if this came to light at the time of submitting a claim, they would look at whether the landlord had taken all reasonable steps to obtain and verify information about their tenant's status before making a decision on whether to allow or decline a claim. A further insurer acknowledged the existence of a potentially contentious issue, but declined to comment any further.

Our advice

It appears that there is potential for a problem for any landlord who doesn't have a policy with a non invalidation clause in their insurance contract. Even those that do, have an obligation to ensure that their information is correct.

If you have a letting agent, ask for their written assurance that they have followed up references and can confirm that the information they have provided remains accurate and up to date.

If you don't have an agent, you should consider adjusting your tenancy agreement to include a clause obliging the tenant to advise you of any change in their circumstances - you should obtain your own legal advice in this respect. Furthermore, do ensure that you keep records of periodic enquiries to confirm your tenant's ongoing status.

If a situation does come to light at the very time you are putting in a claim, you should expect a fair and just response from your insurer. However, if you can demonstrate that you have taken all reasonable steps to ensure that your information is accurate and up to date, I'd give a lot more for your chances.

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