Referencing and Rent Guarantee insurance

Published on Tuesday, 01 August 2023. Posted in Case Studies

This case concerned the requirements of the rent guarantee insurance policy in relation to the referencing conducted by the Agent.

The Complaint

At the start of the tenancy the Landlord took out an interest in a rent guarantee policy between the Agent and the Insurer. The terms and conditions of the policy required the Agent to ensure that all Tenants had been satisfactorily referenced and they met any conditions attached to the referencing. At the end of the tenancy the Tenants left owing three months of rent. Upon making a claim against the rent guarantee policy the Landlord was informed by the Agent that as referencing had picked up that the Tenants had a previous history of occasional late payments, the claim would not be successful.

Upon questioning this, the Agent responded stating that the Landlord had been aware of the Tenants’ rent payment history at the time of referencing, that they didn’t have time to analyse individual references at that time as they had needed to move quickly to secure the insurance product and that they were also relying on the Landlord to read the small print of the policy and check that is was suitable in the circumstances.

Despite this response, the Agent refunded just over £400 paid in insurance premiums by the Landlord and stated they considered this to be a suitable resolution to the dispute. The Landlord did not agree and referred the dispute to the Ombudsman.

The Investigation

The evidence provided showed that the Landlord took out an interest in the rent guarantee policy agreed between the Agent and the Insurer. The details of that policy stated that it would be valid provided the Tenants were not in arrears at the time the policy was taken out nor in arrears for 31 days or more over the previous 12 months. In addition, the policy confirmed that the Agent was responsible for ensuring the Tenants were satisfactorily referenced by the Insurer’s referencing service and that any conditions attached to their referencing had been met.

The Agent’s file showed that rather than use the Insurer’s referencing service, they had carried out referencing themselves. Furthermore, their referencing showed that the Tenants’ rent statement for their previous let demonstrated that while there had been some sporadic payments they had not been in arrears for 31 days or more in the 12 month period leading up to the new tenancy.

When the Tenants defaulted on the rent and the Landlord made a claim, the Agent’s file showed that the Insurer had rejected the claim “…due to references/credit check”.

Looking through the documentation issued to the Landlord at the start of the tenancy, the adjudicator noted that, on balance, it was not detailed enough to highlight that the proposed let arrangement did not meet the rent guarantee policy’s criteria. In addition, the referencing information received by the Landlord was also not detailed enough in relation to the Tenants’ previous rental history and, ultimately, not adequate for the Landlord to perform any sort of checks against the limited information regarding the rent guarantee policy.

The Outcome

It was clear that if the Agent had used the Insurer’s referencing service, this would have validated the rent guarantee policy. This was because, although the Tenants had previously made sporadic rental payments, they had not been in arrears at the point of referencing nor in arrears for 31 days or more during the previous 12 months.

The adjudicator considered that while the Agent’s refund of the insurance premiums was a gesture in the right direction, this did not reflect the full extent of impact of their shortcomings on the Landlord.

Accordingly, an award was made for financial loss amounting the three months rent, minus the value of the insurance premiums with the caveat that if any action to recover arrears from the Tenants was successful, the Agent should be reimbursed for the rent. In addition, a further award of £200 was made to the Landlord to reflect the avoidable aggravation and inconvenience the Agent’s shortcomings had caused. The total award of £2,160.62 was made which the Landlord accepted in full & final settlement.