HMO Insurance – Do I Need Alternative Accommodation Cover?

The continued growth and popularity of House in Multiple Occupation (HMO) properties across the UK continues to assist in meeting the demand for affordable accommodation as well as providing increased rental yields for Landlords.

However, Landlords and Property Owners must be fully aware of the potential increased risk exposures by ensuring that your Landlord Insurance policy provides adequate protection.

HMO Insurance – Do I Need Alternative Accommodation Cover? Find out more here

Do HMO Properties Need Specialist Cover?

Many standard Landlord Insurance policies will only provide cover for a single tenancy agreement, typically an Assured Shorthold Tenancy (AST) of 6 months or more in length.

Clearly by definition, an HMO will have multiple tenancy agreements, often short-term, which will not meet standard buy-to-let policy requirements.   As such, it is advisable to purchase bespoke HMO Insurance from an insurer who understands the specialist nature of the risk.

Loss of Rent vs. Alternative Accommodation

Loss of rent and alternative accommodation cover are provided as an extension to the standard property (bricks and mortar) cover on a Let Property Insurance policy.  Loss of rent cover will provide indemnity for rental income lost following an insured claim (such as a fire or flood).

For example, your property suffers a burst pipe and reinstatement and repairs take 3 months – in this circumstance, the Loss of Rent extension will meet the rental income you would have received during this period (subject to the adequacy of your sum insured).

TOP TIP – Don’t confuse Loss of Rent cover with Rent Guarantee.  In reality, both areas are completely different perils requiring separate insurance protection.  Rent Guarantee policies provide indemnity for unpaid rent by tenants (subject to policy terms and conditions being met).

Alternative Accommodation cover provides indemnity against costs incurred to re-house tenants following an insured loss.  

While many HMO Landlords, particularly multiple property owners, maybe comfortable carrying loss of rent risks themselves, it is easy to overlook the significant exposures presented by alternative accommodation claims.

Why Is Alternative Accommodation So Significant for HMO’s?

The heightened risk for multiple tenancy properties is two-fold.  Firstly, the simple accumulation risk of 5 or more individual tenants should the entire building become uninhabitable. Secondly, the personal circumstances of some tenants can increase financial exposure to alternative accommodation cost.

Regardless of the specific content of tenancy agreements if your property does become uninhabitable and the tenant is not in a position to make alternative living arrangements, the local authority or court may deem that you are responsible to immediately re-house them in hotels or guest houses, all at your expensive.

How Much Cover Do I Need?

The sixty million dollar question with any insurance policy! You may find that some HMO Let Property Insurance policies will provide a standard limit of cover for Loss of Rent and Alternative Accommodation, typically around 20% of the Buildings Sum Insured.  

For example, the re-building sum insured of your property is £200,000, cover will be provided for loss of rental income and alternative accommodation expenses up to £40,000.

However, as all individual circumstances are different, you must ensure your policy provides adequate cover for your exacting requirements.