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Commercial Property Owners Winning The Fight Against Tenant Insolvency

Commercial Property Owners Winning The Fight Against Tenant Insolvency
1 min read

Commercial Property Owners Winning The Fight Against Tenant Insolvency

Despite property being one of the most consistently performing investment classes in Australia, the relationship between landlord and tenant remains one of the keys to maintaining a stable return. With increasing rates of corporate insolvencies, what are property owners doing to tackle this seemingly unmanageable problem?

When a company collapses we immediately think of the creditors - these could be lenders, suppliers, or employees. Even gift card holders have been getting some press!

But what about Property Owners...?

Despite property being one of the most consistently performing investment classes in Australia, the relationship between landlord and tenant remains one of the keys to maintaining a stable return.

Whilst a small retail store within a major shopping centre might be easily re-leased, what about a large, single-tenant manufacturing plant located in regional Australia?

With increasing rates of corporate insolvencies, what are property owners doing to tackle this seemingly unmanageable problem?

  • Bank / Directors guarantees? Yes

  • Financial analysis? Yes

  • Reference checks? Yes

  • Credit reports? Ye

  • Insurance?  Wait…is this even an option?

It is now.

Australian property owners can now utilise insurance as a tool for managing the risk of tenant default. The new product, known as ‘Commercial Tenant Default’, provides up to twelve months loss of rent cover should a tenant become either insolvent or default on their rental obligations.

For Property Fund Managers this is a game-changer. Aside from the peace of mind, it provides some compelling benefits:

1.    Provides stability to an asset

2.    Assists in maintaining consistent yields

3.    The cost of the insurance may be recoverable as an outgoing expense

4.    May assist in obtaining a lower cost of debt

Premiums typically range between 0.75% – 2.0% of annual rental income. Whilst aimed at single-tenant assets, coverage is also considered for multi-tenant assets (although it is limited to 15 tenants and available only for industrial or office occupancy).

This product has been a welcome relief for property owners who now are able to take control of what can be an extremely volatile aspect of property investment.

So…what are you doing to protect your property or property fund against the ever present risk of tenant default?

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