Property Management is all about sorting through issues that occur from time to time and we thought that a couple of recent incidents would be interesting to share with you as examples of what can take place in the world of Property Management.
Accidents happen, we all know that. Sometimes they are small and insignificant but sometimes they are a lot bigger than what you thought. Claiming for those incidents is a balancing act because the cost of the excess in the insurance policy may not make it economically sound and other insurance policies may have excess amounts to be considered. For example, the size of the excess payable may determine whether a small damage claim for a broken window is lodged with the Insurance Company or whether its best sorted without their involvement.
We recommend Terri Scheer to all of our Landlords as the preferred Insurer because our experience with their insurance claims service makes them stand out from all the rest. Naturally we can only make a recommendation based on this and the client can always decide who they want to use by comparing policies.
Recently we assisted one of our clients with the worst insurance claim we’ve ever had, made up of rental arrears, loss of rent as a result of the property not being able to be rented, property damage including holes in walls, doors off their hinges, carpet stains, burn marks and rubbish removal.
This situation was compounded by the very short timeframe in which the damage occurred and we were genuinely shocked by how quickly this all took place.
In normal circumstances IDPM handles the insurance claim as the Managing Agent and disburses the money on receipt from the Insurance Company. For example we would oversee the work that’s done, coordinate tradespeople with access to the property and ensure the repairs are completed.
Unfortunately, when unforeseen things happen they tend to happen “big” and for this landlord it was certainly that way. The good news is the insurance policy claim was handled very smoothly by Terri Scheer and they were very professional in dealing with this matter. After all the heartache the property has been re let and our Landlord is very happy.
The same can’t be said of other occasions, through no fault of ours, when we have had insurance claims with different Insurers.
We had a situation where the disbursement of funds for the insurance claim were sent to the landlord directly rather than Investors Direct as the Managing Agent, even though we had been organising the insurance claim from the start.
In that instance, the fact that the insurance claim had an element of loss of rent meant that the refund had to be shown as income. This is important for all Landlords to understand.
Here is confirmation taken directly from reference to the ATO Rental Properties Guide 2017
|“You must include rental bond money as income if you become entitled to retain it, for instance, because a tenant defaulted on the rent, or because damage to your rental property required repairs or maintenance.|
If you received an insurance payout, there may be situations where the payout needs to be included as income, for example, if you received an insurance payment to compensate you for lost rent.”
As far as the ATO is concerned the correct flow for Property income is that it goes from tenant to Property Manager, with any outstanding expenses being paid, then the remaining net amount is paid to the landlord.
When that flow is interrupted, the danger exits that the Landlord may inadvertently forget to declare the income. Perhaps the money is even spent without returning to the investment property cash flow?
If we extend this a little further, what if the property in question had been a SMSF held property and the refund, was directed to the client individually? Obviously for this to occur, there would have to be a number of errors occurring along the way but we’ve been around long enough to know that simple mistakes and misunderstandings can happen with insurance companies.
Given this scenario, there would be some interesting conversations to be had with the ATO.
From our point of view, saving a few dollars on an annual insurance premium is little comfort when a simple mistake can create such far reaching problems.