The financial balance of a rental investment is essentially due to the regularity of the rent payments. To protect against defaulting tenants, landlords can take out specific contracts such as unpaid rent insurance ( GLI ).
Offered by most banks and insurance companies, contracts can also be taken out with real estate agencies managing a rental fleet. These collective agreements often make it possible to benefit from a preferential rate.
Conditions of approval
In order for the tenant to accept an unpaid rent guarantee, the tenant must be solvent and meet a number of requirements. The owner must also comply with the formalism imposed by the insurer, particularly as regards the drafting of the lease and the recovery and recovery procedure.
The solvency rule in this type of contract is the same as that required by banks to obtain real estate financing, ie a debt ratio of less than or equal to 33% of professional income. But some exemptions can be granted according to the situation of the tenant. This is the case, for example, of students or young active people for whom the parents stand surety .
The candidate to rent will have to prove a stable job and therefore hold a contract of indefinite duration. Thus, if the latter is on a fixed-term contract, in the interim or if the CDI includes a trial period, the guarantee of solidarity of a third party will be required.
The vouchers of a GLI contract
The unpaid rent insurance file must include a number of supporting documents:
- Copy of the last three payslips
- Last imposition opinion
- Copy of the employment contract
- Copy of the lease agreement
Ensuring the longevity of rental income
Contracts generally offer three types of guarantees. They cover above all the amount of the monthly rental (as it appears in the lease) in case of default of the tenant , but also all the current charges and taxes associated with it.
However, some paid options allow investors to benefit from wider coverage by subscribing to additional benefits that cover the deficiency and the vacancy.
This option makes it possible to guarantee the payment of the rent in case of absence of a first tenant . It is often proposed by developers as part of a property tax exemption operation to reassure the investor. It takes effect from the rental of the property.
The rental vacancy
Unlike the previous guarantee, the rental vacancy only works after the establishment of a first tenant. It then covers the financial loss in case of vacant housing . In both cases, these options have limits that may vary from one contract to another.
On the other hand, most companies apply deductibles, that is, periods of non-indemnification. We advise you to read carefully the general conditions of your contract and to play the competition before signing.
The guarantee of real estate deterioration
The coverage of contracts that provide rental income is more general than we think. This is the case of the real estate deterioration guarantee which covers the material damage caused by an unscrupulous tenant.
It makes it possible to benefit from financial assistance for the restoration of the housing and to ensure the continuity of the payment of the rents during the time of the works of rehabilitation and the “relocation”.
Here too, we advise you to read your contract carefully and to compare the compensation limits proposed.
Our advice: be careful when you establish the inventory of places of entry and exit because the guarantee of real estate deterioration is based on these two documents.
Assumption of litigation costs
Landlords know that falling on a dishonest tenant can lead to complex situations and sometimes to lengthy and expensive procedures to “recover” his home. GLI contracts again provide a satisfactory answer by covering litigation costs to a certain extent.
But beyond the financial aspect, these contracts provide valuable assistance and valuable legal advice and have the merit of relieving the owner of sometimes restrictive procedures. They generally include the costs related to reminders, the procedure of recovery, the intervention of a bailiff and the procedure in case of recourse to justice.
The limits of unpaid rent insurance
If the interest of taking out such guarantees is obvious, remember that, like most insurance contracts, they have time and amount limits. Thus, even if the guarantee begins to run from the effective date without waiting period (except for the premature departure of the tenant), the first benefits are paid retroactively only from the third month.
This aspect of the compensation is not without causing cash flow problems because when the property has been financed by a mortgage, the investor must continue to pay the loan maturities.
On the other hand, the amount of benefits is subject to a double limit.
- In terms of duration first of all, 24 months for the best contracts. This in principle leaves plenty of time to select a new tenant, except when the dwelling is in an economically stricken area.
- In terms of amount then even though most contracts provide comfortable coverage.
The reimbursement levels for court fees and property deterioration are also capped.
The cost of guarantees
The secured portion of unpaid rent generally includes property deterioration and the costs of proceedings. The average rate recorded in individual membership, that is to say if you subscribe directly to the company, is of the order of 2.5% of the amount of rents including charges.
But if you subscribe with the agency or the promoter, you will be able to benefit from a cost lower than 2% while benefiting from group rates . The premiums will however be more important if you choose the options deficiency or vacancy.
Difference between the insurance of unpaid rent (ALI) and the guarantee of rental risks (LRG)
The government initiated the implementation of a rental risk guarantee. This formula is much more flexible. Indeed, to benefit from LRG , the tenant must have income twice the amount of rent, charges included instead of three in a GLI insurance.
It is therefore an interesting alternative to landlords in the event that the applicant for rent does not fulfill the required conditions. These contracts are distributed only by the three insurers who have agreed to sign an agreement with the state, that is to say to date:
- The DAS (Automobile and Sports Defense) of the MMA Group
- The Investment Guarantee Fund (CGAIM)
- The Mutual Alsace Lorraine (MAL).