Sublet Insurance

Subletting a property, i.e. letting your property to a third party who will then rent it out for you, such as a housing association, letting agent or another landlord, is a popular way for landlords to maximise their return on investment and make as much money out of the property as possible.  While this is an excellent way of making more money, there is a good chance that if you choose to do this, you will be voiding your landlord insurance policy.  Which means, if there is a problem with the property, your insurance may not pay out leaving you to pay for any repairs or damages to the property yourself.

Landlord insurance policies require an AST

Almost all (approximately 90%) of landlord policies require landlords to have an Assured Shorthold Tenancy (AST) directly with a tenant, not sublet, which is the most common form of tenancy type. A tenancy is classed as an AST if:

• You are a housing association or a private landlord.
• You do not live in the property.
• The tenant’s use the property as their primary accommodation.
• The tenancy began on, or after, 15^th January 1989.

However, a tenancy cannot be an AST if:

• The landlord is a council.
• The rent is more than £100,000 per year, or less than £250 a year (less than £1000 per year in London).
• The tenancy is for a business, or is licenced premises.
• The property is a holiday let.
• The tenancy began before the 15^th January 1989.

Rent to Rent Agreements

Landlord insurance covering subletting

The letting market is ever-evolving and landlords are always seeking the maximum return on investment (ROI) possible.  Letting a property directly to a client is often more difficult and time consuming for a landlord.  It involves finding a tenant, running the tenancy agreement on a day-to-day basis and maintaining the property.  For this reason, many landlords seek to find easier ways to let their properties, such as subletting properties from other landlords.  This kind of arrangement is known as R2R, which means Rent to Rent.

In R2R arrangements, the landlord will usually sign an agreement for a specified period (usually three to five years) with a property owner.  Doing this, they agree to guarantee rent over this time, giving property owners peace of mind that they will have continuous rental payments.  Typically, the R2R landlord will then let individual rooms out in the property, turning it into a HMO with the view of maximising the rental income they receive.  Some R2R landlords might even decide to let the property to a housing association, who will also sign an agreement and in doing so, guarantee the rent.

Whether the property is sublet once, or more than once, the act of subletting a property like this, will usually void the insurance policy on the property. Which means if anything does happen to the property, you will not be able to make a claim and the financial responsibility of fixing any problems, will fall to you. For this reason, it is absolutely crucial that you are honest and open with your insurer, making them aware of any changes or sublets in place. This will help them to make sure you are suitably covered and do not find yourself financially crippled if the property is severely damaged.

Housing Association Sublets

Sublet landlord insurance

Properties that have been let to housing associations are a much higher risk than a direct tenancy agreement in which you can vet the tenant.  This is because housing associations, by law, are obliged to accept all referrals that they receive, regardless of who the tenant might be.

This includes ex-offenders and ex-substance abuse users which typically, are not covered by most insurance policies.  This means, if you let your property to a housing association you have little control over who becomes the tenant in the property and could find yourself with a tenant that voids your insurance policy.

Other subletting problems

Subletting your property can cause other problems, as well as voiding your insurance.  For example, a sublet might also invalidate the terms of your mortgage as most buy-to-let mortgage products specify subletting is not allowed.  There may also be laws that are specific to your area that you need to abide to, for example, in London, it is illegal to provide temporary accommodation for paying guests for more than 90 days per year.

Another problem you might encounter is your tenants subletting your property without informing you about this first.  If this is the case you will need to make an appointment with your tenant to explain to them that they must request, in writing, your approval before subletting. Failure to do so gives you the right, at the landlord, to evict them on the basis that they have breached the terms of their contract.

How to make sure you are covered

Before you decide to go the route of subletting, the first thing you should do is check with your insurance policy to make sure you are covered if the property is affected negatively by the tenants.  If you are not covered, then you will need to consider switching to an insurance policy that does cover you in this eventuality.

The alternative is to take the risk, but this does mean that if something happens to the property, the financial responsibility to make repairs will fall entirely to you.  This might not be a problem if the repairs are small and do not cost much, however, if your property has suffered vast damage, this could become quite costly for you.

Choosing an insurance policy

If you do not have any insurance and you are now looking at getting some, and you are also considering subletting a property, then you will need to make sure you choose an insurance policy that is suitable for your needs.

If you aren’t sure whether you’d like to sublet, but think that it might be a possibility, it is worthwhile taking this into account when you choose your policy.

Different policies will cover your property in different ways, so always be sure to read the insurance policy documents thoroughly before making your decision.