Protecting Rental Payments
By Jorge Ignacio Rodríguez Suárez | @jrsrealestatepr
Despite massive ongoing vaccination efforts, the economy has not recovered as soon as we expected, and there is still uncertainty about how long the Covid-19 restrictions will continue. Many tenants are still unemployed or going through situations that make it challenging to comply with their responsibility to pay the rent. Whether or not the landlord is receiving rent, they are still responsible for the property’s operating expenses such as taxes, insurance and maintenance costs.
The federal government is taking action to offer relief for those having trouble making rent payments due to the coronavirus pandemic. Among those relief efforts are the eviction moratoriums, emergency rental assistance programs, protection for renters under the federal Cares Act, and protection for renters if your landlord is getting mortgage relief.
How long can these rental relief efforts last? Fortunately, there is an option for landlords to offset those losses when a tenant moves out or violates the lease agreement.
A lease guarantee bond or surety bond protects the owner (landlord) from possible rent defaults during the contract term. It is required by many landlords and property managers as financial assurance when a lessee (tenant) consents to a long-term rental agreement. This three-party agreement between the tenant, the landlord and the insurance company guarantees a maximum of three monthly rent payments.
Remember, having excellent communication between the landlord and tenant to facilitate solutions through this challenging time remains one of your best options.Jorge Ignacio Rodríguez Suárez | @jrsrealestatepr
The lease guarantee bond should not be confused with the security deposit that tenants have to pay upfront when signing a lease, along with the first month of rent. These are two different security instruments. The security deposit guarantees that the tenant will keep the property in good shape and the surety bond protects the owner against a tenant’s noncompliance with the rental agreement.
Who is the beneficiary of the lease guarantee bond? If the tenant fails to comply with their rent obligation, the insurance company will take care of the outstanding rent payments, with the landlord as the beneficiary. It is the responsibility of the landlord or property manager to file the claim with the insurance company. Surety bonds apply to residential and commercial properties and have an annual coverage period.
Remember, excellent communication between the landlord and tenant to facilitate solutions through this challenging time remains one of your best options.
The author is a real estate agent and marketing consultant and does not offer insurance advisory services. If you want insurance advice, consult with the insurance agent of your choice, authorized by the Puerto Rico Insurance Commissioner’s Office. Contact the author at firstname.lastname@example.org or visit www.jrsrealestatepr.com