How to choose the right unpaid rent guarantee?


[AVIS D’EXPERT] Legal proceedings against tenants who do not pay their rents are not so rare. To protect yourself, there are unpaid rent guarantees. But you have to pay attention to the small lines of the contracts. Decryption by our expert Bassel Abedi, founder of Horiz.io (ex-Rendementlocatif.com).

The fear of a landlord? Having a tenant who does not pay his rent! But then, what if one day a tenant no longer pays his rent? Fortunately, to remedy this (but also to guard against the risk incurred), there is unpaid rent insurance: insurance that covers the landlord in the event of non-payment by the tenant.

Litigation not so rare

The rise in rents is increasingly felt in France. Currently, on the whole of the French private rental stock, all types of property combined, around 2% of rents remain unpaid…

Even if this figure is not exorbitant, the impact for a landlord is not to be neglected. And yes, because unpaid rent generally means a monthly loan payment in default. For a monthly rent fixed at 750 euros on the lease contract, do the math, it can quickly add up if the unpaid bills recur several times in a row.

Fortunately, in general, the situation is settled amicably between the tenant and the owner thanks to a clearance plan which provides in writing for an agreement between the owner and the tenant to stagger the debt corresponding to the unpaid rents. If this is not the case, the owner can then file a complaint and take the matter to court. According to the latest available figures (dating from 2017) from the Ministry of Justice, more than 140,000 procedures are brought before the courts each year to request the eviction of a tenant in a situation of non-payment of his rent and the unpaid bills have increased. 35% over the past 10 years.

A turnkey solution: the unpaid rent guarantee (GLI)

Between the bailiff’s report, the order to pay, the amicable expertise or even the judicial expertise, bringing an unpaid bill to court costs money (at least 3000 euros) and takes time (about 12 months). The good news? To protect against unpaid rent, there is an insurance contract: the unpaid rent guarantee (GLI) which secures rental income. Houses, apartments, garages‚Ķ All properties intended for rental can be insured with an unpaid rent guarantee if they benefit from a long-term rental contract.

Not mandatory for landlords, this insurance is still highly recommended. Unpaid rent insurance, or unpaid rent guarantee (GLI), makes it possible, as its name suggests, to be covered in the event of non-payment of rent by its tenant. Concretely? If a tenant no longer pays his rent, this guarantee will compensate the owner for the amount of the rent for a period defined in the special conditions.

With some companies, unpaid rent insurance can also cover some specific situations. For example, it can cover the costs of bailiffs or lawyers requested during the procedure for recovery or eviction of the tenant, the costs of restoring your accommodation in the event of damage to your property if the deposit of warranty is not sufficient to cover necessary repairs.

This insurance can be taken out as an option to a non-occupant owner (PNO) insurance contract or as a stand-alone contract.

How to choose a suitable guarantee?

Optimal location, choice of the type of property and its area, calculation of rental profitability… Investing in rental property requires certain precautions to be sure not to lose money. Unpaid rent insurance is therefore strongly recommended for owners who invest, especially when they intend to repay the installments of a mortgage with the rents to be collected.

However, it is essential to take your time to choose the right insurer and the guarantees of your contract. Each insurance company freely sets its conditions and its contributions, it will be necessary in particular to check and compare:

– the waiting period applicable between the subscription of the contract and the actual assumption of the risk;

– the amount of the deductible (your remainder payable) if there is;

– the insurance premium;

– the time limit for unpaid rent that will be reimbursed, as well as the maximum ceiling;

– whether or not to cover the procedural costs for the recovery of unpaid rent;

– the protection or not against damage to your property if the security deposit is not sufficient to cover the necessary repairs;

– if the death of the guarantor and/or the bad payer tenant is covered;

– proof of solvency of the tenants (generally, the insurers require that the accommodation be the main residence of the tenant, that he justify a monthly income at least 2.85 times higher than the amount of the rent and that he has a situation stable professional);

– the warranty exclusions applicable to your contract which are specified in the general conditions of the insurance company.

After comparing these many points, you will be able to choose the contract that best suits your situation and will be able to intervene to compensate you if necessary. Finally, note that even if the insurance premium is quite high, it is fully deductible from your property income.

By Bassel Abedi, founder of Horiz.io

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