Landlords - this little mistake could cost you your home!

by Cliff D'Arcy on 26 January 2012  |  10 comments
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These homeowners-turned-landlords learnt a horrible lesson when they rented out their house!

There's an old expression among landlords: "Better an empty house than a bad tenant." In other words, it's preferable to have a few months of voids (when no rent is coming in) than to install a problematic tenant into your property.

Around 20 years ago, a friend of mine found out this valuable lesson the hard way. To disguise her identity, I will call her Mary. I met Mary in the late Eighties, when we worked at the same company.

An older, well-bred (and almost aristocratic) lady with a charming manner, Mary was a delight to work with. Through her family, she had social links to the Royal Family and, being comfortably well-off, she worked part time purely to occupy herself, rather than for money.

After a while, Mary decided to take a year off work and travel the world with her husband. Rather than leave her lovely home in Surrey empty for 12 months, she decided to rent it out to upmarket private tenants.

Through a private advertisement, Mary found two twenty-something chaps willing to pay the full rent she had advertised. Both men were graduates with good jobs in the City of London, so Mary happily headed off on her world excursion, confident that she had chosen top-class tenants.

An owner's nightmare

Unfortunately, Mary was very, very wrong!

What she found would leave a horrible, everlasting mark on her memory. Her beautiful home was practically destroyed.

As it turned out, her two well-spoken tenants were hedonists who loved to party. Although they paid their rent on time, they used Mary's house as a venue for a series of raucous raves. The partygoers at these events -- and the tenants themselves -- had all but reduced Mary's house to rubble.

Rubbish was strewn all over Mary's garden, including hypodermic syringes and other drug paraphernalia. Inside her home, the damage was even more destructive. Fixtures and fittings had been ripped out, doors had been kicked in, and there were holes in several walls. Following a fire, the main bedroom was completely burnt out.

In short, almost every feature of Mary's elegant, period property was damaged to some extent.

Insurance? What insurance?

By the time Mary arrived to take control of her home, her tenants had 'done a bunk' and were nowhere to be found. Therefore, Mary started the painful process of rebuilding her life and home by contacting the provider of her home insurance. Via its helpline, she patiently set out the extensive damage to the building and its contents.

Alas, Mary had made a disastrous error. Before leaving for her worldwide jaunt, she had failed to notify her insurer that her property was being rented out and was no longer owner-occupied.

As owners tend to look after their properties better than tenants do, insurance companies charge higher premiums for rented homes. What's more, home insurance policies sold to homeowners clearly state that they cover the owners, their immediate family and occasional guests, but not tenants. Indeed, most bog-standard home insurance policies become null and void as soon as a property is rented out.

As a result of Mary's non-disclosure, her insurer refused to consider her claim. Despite Mary's written protests (which included getting her MP involved), the company stuck to its guns, as it had a water-tight case.

Learn from Mary's mistake

Without a valid insurance policy, Mary had to use her life savings to restore her detached home to its former glory. The final bill for this restoration work came to more than £50,000. This payout left Mary and her husband much less financially stable than they were before embarking on their globe-trotting journey.

In summary, Mary learnt the hard way that becoming a temporary landlord is much trickier than it first appears. To protect yourself against falling foul of a similar situation, you should:

• Consider using an established, professional letting agency to rent out your home. While these fees will cost you perhaps a tenth (10%) of the monthly rent, you can pursue the company if you lose out as a result of its actions. If you'd prefer to go it alone, make sure you get the right tenants - check out Landlords – pick the right tenant for a guide.
• Ask for a substantial deposit to cover any damages incurred during the term of the tenancy. Ideally, this sum should be at least two to three months' rent.
• Before letting out your house, you must inform your mortgage lender and insurance company that you intend to take in tenants. Otherwise, you may breach the terms of your home loan and invalidate your insurance!

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