A Legal Expenses & Rent Guarantee Service – is it worth it?

With the implementation of the Renters Rights Act there is increasing encouragement from Letting Agents to take out Legal Expenses and Rent Guarantee Insurance. So, we thought it would be useful for Hello Neighbour to share our thoughts and experience on the subject; whether it is necessary, and what to look for if you do decide to use it.

Why do I need a Legal Expenses & Rent Guarantee Service?

Despite rigorous tenant checks and references, tenants defaulting on rent or other breaches of the tenancyagreement can be a risk for landlords. Evicting tenants can be costly and recovering lost rent can also be expensive.

According to the latest English Private Landlord Survey from Gov.uk , 42% of landlords reported rent arrears as the reason for ending a tenancy.

When a tenant struggles to meet their monthly rent, do you have a backup for paying your mortgage and other costs? As well as the financial impact of rent arrears, if you are forced to issue court proceedings against your tenant, you could incur substantial legal fees.

Legal Expenses and Rent Guarantee Insurance can provide cover designed to help protect landlords from the financial losses that can occur because of tenants failing to pay their rent. This insurance can typically cover rent arrears and legal costs associated with the eviction of a tenant who has not paid their rent.

Who uses a Legal Expenses & Rent Guarantee Service?

So Rent Guarantee Insurance tends tobe especially useful for:

• Landlords relying on rent to cover mortgage payments
• Single-property landlords with limited cash buffer
• Landlords wanting certainty and peace of mind
• Situations where eviction costs would be difficult to absorb
• Periods of economic uncertainty

Who doesn’t use a Legal Expenses & Rent Guarantee Service ?

However, there is a cost to insurance and so some landlords decideagainst using it because:

• Their tenant is well known to them and has an excellent track record of paying rent
• They have strong financial reserves, so they self-insure
• They manage risk across a large portfolio
• They prefer to self-manage arrears and legal action
• The tenancy type doesn’t meet an insurers’ criteria
• They have guarantees built into the service provided by their managing agent (e.g. our ‘Management Plus’ service)

If you do decide to take out insurance, then it is vital to read the small print to ensure you have the cover you think you have.

Does the Renters Rights Act change the debate

Existing law requires the serving of a section 8 notice if a tenant breaks the tenancy agreement – for instance they don’t pay rent. This can be served after 2 months rent arrears with 14 days for the tenant to respond.

Under the Renter’s Rights Act rent arrears remains a mandatory ground for possession of your property and a section 8 can be served. The Act requires 3 months of rent to be unpaid. It also requires the landlord to give 4 weeks’ notice once the three months’ rent is unpaid before serving a section 8 notice.

Both will be subject to court timetables which are unlikely to shorten in the near term. Average time to possession are currently in the 6-7 months range. With section 21 abolished this could increase as courts become even slower with estimates closer to 8-9 months post implementation.

In either case, the cost to the landlord is significant and should be weighed up against the cost of insurance and probability of a claim.

What does Rent Guarantee Insurance usually cover?

Rent Guarantee Insurance is designed to protect landlords if a tenant stops paying rent. While policies vary, most UK RGI products include the following core elements:

Missed rent payments

• Covers unpaid rent if a tenant falls into arrears
• Typically pays monthly, in line with the rent due
• Can be capped at 6–12 months of rent
• Some policies pay from the first missed payment, others after a set arrears period

Legal expenses

Most policies include legal cover to:

• Serve correct notices
• Start possession proceedings
• Cover solicitor and court fees
• Handle the process through to eviction if needed

This can be one of the most valuable parts of RGI, as eviction costs can quickly add up.

Some higher-tier policies also cover continued rent payments while possession proceedings are ongoing to provide support until the property is legally returned to the landlord.

What Rent Guarantee Insurance usually does not cover?

This is where misunderstandings often arise. RGI generally does NOT cover:

• Property damage
• Cleaning or redecoration costs
• Arrears that existed before the policy started
• Tenancies that fail referencing criteria
• Informal or non-compliant tenancy agreements
• Pursuing legal matters outside of the agreement directly with the tenant

Insurers are strict about tenant referencing checks to ensure they are as effective as possible and so reduce the risk of arrears. With the implementation of the Renters’ Rights Act, this will become even more important as eviction becomes more challenging. It will also be important to ensure that the tenancy agreement you use is compliant with the Act.

Typical conditions landlords must meet

It is key to read the terms and conditions of any policy, but in general, to make a successful claim, landlords usually must have:

• A properly referenced tenant (credit check, income verification, right-to-rent checks, proof of identity)
• A legally compliant tenancy agreement
• Rent set at a reasonable proportion of tenant income – an affordability check done as part of a reference check
• Issue relevant documents to tenant (e.g. EPC, gas cert, how to rent guide, deposit information)
• Correct notice served promptly when arrears arise with legal advice

If these conditions aren’t met, claims can be rejected — even if rent isn’t being paid.

Why is referencing important for residential landlords?

Tenant referencing is an in-depth overview of prospective tenants and any guarantors. It can help you select reliable and financially stable tenants and guarantors. Referencing is also are quirement of most Legal Expenses and Rent Guarantee Insurance.

An affordability check is one important aspect of tenant referencing, in which a tenant needs to prove they can afford to pay the rent. Landlords may find it more difficult to take out Legal Expenses and Rent Guarantee Insurance if the tenant fails an affordability check. If a tenant does not meet the minimum standards of an affordability check, they may be asked to put up a guarantor.

How can mediation help with rent arrears?

Mediation is an Alternative Dispute Resolution(ADR) that gives landlords and tenants the opportunity to resolve issues without going through the courts. This process can be useful for rent arrears disagreements between landlords and tenants. The purpose of mediation is to help the two parties find a mutually agreeable solution overseen by an independent mediator.

Mediation involves an impartial person, trained to deal with difficult discussions, who acts like a referee in a meeting between the two sides in an attempt to find a way to resolve the problem. A mediator will not make a decision, nor will they enforce any resolutions or pathways. What they will do is guide the parties to find an outcome that will be entirely decided by the landlord and tenant.

Overall approach to risk management

It is important not to consider Rent Guarantee Insurance in isolation but rather to think about how you as a landlord can reduce your risks in the round. High-quality tenant referencing, an independent professional inventory and a proven tenancy contract with your tenant can often be a more effective solution.

Good communication with your tenant, with six-monthly inspections, can also be part of a practical risk-management approach.

Hello Neighbour’s approach

For the thousand properties we manage, we use high-quality references, independent inventories and mid-term inspections as well as clear communication with the tenant.

Whilst we know a great deal about letting we are not an expert in insurance nor are we authorised to discuss or arrange it. We have, however, partnered with The Alan Boswell Group to provide standalone Legal Expenses and Rent Guarantee insurance.

They are one of the largest independent insurance brokers in the UK with over 450 staff and with over 86,000 properties insured. Their insurance products are underwritten by Aviva and has a good reputation. They have protected landlords for over 40years with their award-winning insurance products. Over 40,000 landlords have entrusted them with protecting their income, with over 90% of landlord clients renewing their policies each year.

The Alan BoswellGroup policy can provide Hello Neighbour’s landlords with the following:

• Financial protection against unpaidrent - Rental payments up to £2,500 amonth for a maximum of 15 months (must be 2 full months of missed rent toclaim)
  To help provide landlords with afinancial backup if a tenant is unable to pay their rent.
  
• Cover for the cost of legal advice andrepresentation up to £100,000 with no excess.
  To help landlords follow the correctprocedures when evicting a tenant.
  
• Cover for the cost of eviction proceedings
  To help landlords through the process ofevicting a tenant due to rent arrears.
  
• A claims process managed by Alan Boswell not by third partyproviders
• Extended cover after eviction – vacant possession cover atup to 75% of the rent for a maximum of 3 months
  Following the successful eviction andvacant possession is gained via thepolicy, a further payment may be able to be made for a3-month period until the property can be relet.
  

To make sure you get the benefits of their experience andavoid wasted time

In short

Legal Expenses Rent GuaranteeInsurance:

• Protects rental income
• Covers legal costs to evict
• Reduces financial shock if rent stops
• Requires good setup and compliance

It’s not right for every landlord, but for many, it provides reassurance that one missed rent payment won’t turninto a serious financial problem.

Whatever you decide and whomever you buy from, make sure you read through the terms and conditions carefully. What does the insurance cover and what is required from the insurer to make sure it pays out when needed.

If you have any questions, please get in touch: