Here are some of the key questions you should ask when considering buying a rental guarantee or insurance product. Products on the market are the no-deposit Rentshield (underwritten by Guardrisk) and more traditional with-deposit policies, offered by Tenrisk (underwritten by Infiniti) and Mi-Rent (underwritten by Guardrisk). Mi-Rent is sold through privateproperty.co.za or the Just Letting group under the brand name Rent Secure.
How does the product work?
* Rentshield. If the tenant does not pay by the due date, the landlord can submit a claim immediately, and a valid claim will be paid out “within 48 hours”. Rentshield will then try to recover the arrear rental from the tenant. If the tenant does pay before the lease is cancelled, the landlord must reimburse Rentshield, or the policy will be cancelled.
* Mi-Rent. Mi-Rent pays the rental to the landlord (or landlord’s agent) on the first of the month, regardless of whether or not the tenant has paid. If the tenant defaults, Mi-Rent will take this up directly with the tenant without involving the landlord. “Hence the use of the deposit as a first payment for a default – it allows us the time to get hold of the tenant and resolve the default,” Mark van As manager of operation for Mi-Rent, says.
The landlord never submits a claim. “We pay the landlord and deal with the claim from the tenant or underwriter directly,” Van As says. If Mi-Rent does not recover the rental, it will engage its attorneys to collect it from the tenant. Once the money has been recovered, Mi-Rent will reinstate the deposit. “Even if the lease has ended, the landlord will be paid the deposit or part thereof depending on whether there were damages-to-property claims from the tenant.”
The Consumer Protection Act says a tenant must be given 20 business days to rectify a breach in the agreement, including the non-payment of rental.
* Tenrisk. You must notify Tenrisk within four working days if the tenant has not paid the rent. Tenrisk will follow up with the tenant. If the tenant has not paid after 10 working days, the tenant will be given 20 business days to rectify the breach. Your claim can be lodged only once the full notice period has lapsed and the lease agreement has been cancelled.
What is the maximum amount of cover?
Policies usually limit cover to the equivalent of the rental for a certain number of months (three in the case of Rentshield; six with Tenrisk). In the case of Mi-Rent (and Rent Secure), the maximum cover is the lesser of R100 000 or the rental until the lease expires.
Insurers may also limit their liability by putting a cap on the monthly rental (R25 000 in the case of Mi-Rent, R10 000 with Tenrisk) and the term of the lease (24 months with Rentshield and Mi-Rent). Insurers may also require a minimum monthly rental (R3 000 with Mi-Rent) or set the monthly premium at a minimum amount (R135 with Tenrisk). There may also be a minimum lease period (one year with Rentshield, six months with Mi-Rent) in order to qualify for cover.
How much do you pay?
The premiums are calculated as a percentage of the monthly rental: 10 percent with Rentshield, six percent (if paid month to month) or five percent (if paid upfront for the full term of the lease) with Mi-Rent, 3.5 percent with Tenrisk; and 2.5 percent with Rent Secure if the cover is taken out through Just Letting.
There may also be a once-off initiation or administration fee. Mi-Rent charges the landlord R222.30 and the tenant R399. The R222.30 entitles the landlord to the vetting of two prospective tenants and rental documentation, such as the lease agreement and a pre-occupation inspection report. The landlord pays R114 for each additional tenant vetted. Alternatively, you can simply pay Mi-Rent to vet tenants, without taking out a policy.
Mi-Rent collects the R399 from the tenant when it debits the tenant’s bank account for the second month’s rental. This is not the case when dealing with Just Letting/Rent Secure – typical agency fees apply.
Do the premiums cover the entire risk?
* Rentshield. Martin Goodman of Rentshield compares Rentshield’s rental cover to a revolving credit account. If a tenant who is in arrears pays up before the lease is cancelled, the value of the cover is re-set.
* Mi-Rent. The landlord cedes the deposit to the insurer, which is entitled to use the deposit to offset any claims made for unpaid rental. In other words, Mi-Rent will first pay out claims using the deposit. If the defaulting tenant pays the rental, the amount will be put back into the deposit. It is a condition of a Mi-Rent policy that the tenant pays a deposit of at least one month’s rental.
* Tenrisk. Tenrisk applies an excess of 50 percent of the first month’s rental (deducted from the payout) for the first claim; thereafter, no excess is payable.
Is the cover subject to the tenant being verified?
Rentshield and Mi-Rent will provide cover only if they have checked a prospective tenant’s credit profile and latest bank statement, and contacted his or her current employer. Rentshield does not charge for vetting tenants (see above for Mi-Rent’s vetting fees). In the case of Tenrisk, the application form will ask you to declare that you have checked the tenant’s credit profile.
Are lease-management services included?
* Rentshield. Lease-management services are restricted to vetting tenants and pre- and post-occupation inspections.
* Mi-Rent. Mi-Rent collects the rental on the landlord’s behalf from the second month of the lease; the landlord must collect the first month’s rental and the deposit directly from the tenant. Mi-Rent will also provide the landlord with a lease agreement and an inspection list, to be completed with the tenant. With Rent Secure, Just Letting collects the first month’s rental and deposit, and Mi-Rent starts debit-order deductions from month two.
* Tenrisk. No lease-management services provided.
Is there cover for legal expenses and evictions?
Cover for the legal expenses to force a tenant to pay arrear rental and/or evict a tenant are included in most rental guarantee products. Tenrisk’s policy will cover the cost of an eviction order up to R120 000, while Rentshield's cover is up to R50 000. Mi-Rent will cover “any” legal costs to obtain an eviction order and to recover arrear rental paid out under the policy.
Check for important exclusions
As with all insurance policies, the insurer is entitled to cancel the cover if the policyholder fails to disclose all material information honestly or does not pay the premiums after a grace period has lapsed. There are also certain exclusions that are unique to rental guarantees. These may include:
* Where the landlord terminated the lease unlawfully;
* Where the tenant has a lawful reason to withhold payment; and
* Loss of rental because the property is damaged or destroyed as a result of events that are commonly insured by a homeowner's policy.