Landlords help struggling tenants, only to be left stranded by insurers

Michael Burrell is losing more than $1000 a month in rent after agreeing to give his struggling tenants a break during the COVID-19 pandemic.

Apr 28, 2020, updated Apr 28, 2020
Michael Burrell says doing the right thing by tenants will cost him thousands of dollars. (Photo: ABC News: Lexy Hamilton-Smith)

Michael Burrell says doing the right thing by tenants will cost him thousands of dollars. (Photo: ABC News: Lexy Hamilton-Smith)

The tenants, a couple who were paying $450 a week for a unit in Teneriffe’s The Cannery, both lost their jobs in hospitality in the same week.

Aware of the Federal Government’s moratorium on evictions for those under “financial distress because of coronavirus”, they asked for their rent to be reduced to $125 a week.

Their heartfelt emails prompted Burrell to act quickly and give them a break as they looked for other work.

The deal is for five months — or less if they both get their old jobs back.

“It is a pretty significant loss for me and for most average Australians I would say, mum-and-dad investors,” he said.

“It is a difficult decision, but in these times I don’t see how anyone can kick someone out on the street.

“Where do they go?

“So that’s really what we had to deal with. You’ve got in one sense a financial obligation to try and meet the mortgage payments.”

Burrell, who is married and has a child, thought he had a specific rental default clause in his landlord’s insurance policy and believed he could at least claw back some of the losses.

A large low-rise residential apartment block seen from the street

Michael Burrell cut the rent on his Teneriffe apartment from $450 to $125 a week. (Photo: ABC News: Lexy Hamilton-Smith)

But it turned out this was not the case.

“We approached our insurer and the insurer’s advice was that we had to kick the tenant out before any of the insurance would kick in,” he said.

“The operator said because of the Government’s moratorium on evictions, they didn’t have to pay under their policy.”

Burrell said he felt like he was being penalised for doing the right thing.

“The insurance company’s view was you had to take a really hard-nosed view and we should have started the process of evicting them.

“The Government’s policy, which is a moral policy, we followed that to our financial detriment.

“You are between a rock and a hard place. The insurance companies seem to be using that policy as a loophole if you like, to not pay.

“I think it is very unfair.”

Rent sign of real estate agency outside an apartment building in Brisbane

Queensland tenants are protected from eviction due to COVID-19 hardship.(ABC News: Liz Pickering)

According to the Real Estate Institute of Queensland (REIQ), Burrell is not alone.

REIQ chief executive Antonia Mercorella said thousands of mum-and-dad investors had been caught out believing they were insured for a financial crunch like this, when they were not.

She said it was a really “big hit” for landlords who had been paying insurance policies for years without cause to ever make a claim.

“It is disappointing that many insurance companies are not being more flexible and offering a hand to those loyal landlords,” she said.

“Morally, it is the wrong thing to do.

“We need to look at this in context where landlords could say the same thing, where legally under their tenancy agreement they are entitled to get the rent as agreed.

“And of course here in Queensland, the Government has said: ‘Give the tenants a break.’ so, it would be nice if insurance companies, who have much deeper pockets than mum-and-dad investors, also did their part to give a hand.”

Legal and moral views differ

Mercorella said she would not go as far as saying insurance firms were ripping people off.

“Because legally, under the terms of their policy, they are well within their rights to deny those claims,” she said.

A woman looking pensive as she stands outside a building

Antonia Mercorella says mum-and-dad investors have been caught out. (Photo: ABC News: Lexy Hamilton-Smith)

“But from a moral or ethical perspective, you might take a different view about their conduct.”

The REIQ said its member agents managed more than 600,000 rental properties in Queensland.

Mercorella said temporary amendments to the Residential Tenancies and Rooming Accommodation Act now included better protections for tenants asked by a property owner to vacate so the property could be put on the market, or to make way for a family member to move in.

The “non-eviction” period for a tenant who has suffered hardship due to COVID-19 will remain in place until at least September 30.

Landlords ‘left high and dry’

Brisbane real estate agent Gabrielle Trickey said up to 10 per cent of her rent roll had been caught up in the unprecedented “rent strike”, with a number of tenants asking to pay no rent.

“So, those landlords are looking at how they are going to pay their mortgages,” she said.

“Because we do not know how this is going to impact mortgages down the track, because we have not had a clear indication from the banks, like, ‘OK it is a tenanted property, we are going to do something nice for you’.

“We are not hearing that.

A woman smiles as she leans against a wooden picket fence

Real estate agent Gabrielle Trickey says governments should have negotiated with insurers. (Phoo: ABC News: Lexy Hamilton-Smith)

“It is hugely stressful. We have some people have just bought houses and just got tenants in and suddenly the rent is not covering the mortgage and they have to find that money somewhere.

“It is not easy and a lot of the tenants thought it would wash over quickly, but it hasn’t.”

Trickey said she believed the situation would lead to mortgage defaults for property owners and millions of dollars in losses.

“If tenants stay in the accommodation rent-free and there is no income, I am not sure how [landlords] will go.”

She said some of her landlords also mistakenly believed their loss, or at least some of it, would be covered by their insurers.

“It is a big confusion. But in most policies, there is a part that says if you negotiate the rent or bring it down to zero that the insurance company will only pay the last negotiated rent,” she said.

A close-up shot of a person's hands holding a set of silver house keys.

Gabrielle Trickey said many landlords believed an agreed rent cut would be covered by insurance. (Photo: Pixabay: Sephelonor)

Trickey said governments should have worked with insurance companies to come up with a resolution to the problem before announcing a moratorium on evictions.

“There was so much pressure on landlords to do the right thing. Landlords have been left high and dry,” she said.

Insurance ‘never designed’ for this

Insurance Council of Australia spokesman Campbell Fuller said state and territory governments had encouraged landlords and tenants to negotiate on rent reductions or deferrals if tenants’ capacity to pay their full rental obligations had been affected by COVID-19.

“These measures are intended to help tenants remain in their homes, rather than be evicted for non-payment or part-payment of their rent,” he said.

“Cover for loss of rent is not always included in a landlord policy and may be added as required [at extra cost].

“Landlords insurance covers the full default, though it does not cover part-payments or part non-payments.

“These products were never designed for insurance to catch up on missing part-payments of rental.

“Landlords cover continues on building and contents and liability protection, which is actually the most common reason for claiming landlord insurance.

“Rental default is a fairly uncommon reason for claiming.”

Coronavirus has, of course, changed that.

But Fuller said the triggers for paying on rental default were clearly explained in policy documents.

He said insurers were willing to help clients who found themselves in financial distress and urged them to speak to individual companies.

“See what other measures are available during this difficult time,” he said.

Burrell said the five-month rent cut he has agreed to would cost him $6500.

He may be able to recoup some of that through the rental bond, or by negotiation once his tenants are working again.

But there are no guarantees.

“There are not going to be many silver linings out of this pandemic,” he said.

“But insurance companies are multibillion-dollar organisations [and] we are the ones footing the financial bills.

“We are doing the right thing giving our tenants somewhere to live during this time and the insurance companies are trying to protect their bottom line.”

Queensland’s Residential Tenancies Authority offers a mediation service for disputes.

– ABC / Lexy Hamilton-Smith

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