Although the phenomenon is rare, there are indeed cases where tenants refuse to pay their rent. A situation always worrying for the lessors, which forces them to pay by themselves the charges of the tenant. A very embarrassing situation for the investor. To prevent this from happening, solutions can be taken before the lease is signed. One of these solutions is to ask the tenant for a deposit before the rental. The second solution is to participate in unpaid rent insurance. This second alternative can cover several risks relating to its investment.
Opt for a deposit or insure in GLI? (Guarantee of Unpaid Rents), in these two cases, you are more or less reassured about the non-payment of the rent by the tenant. Be aware that these two options may have advantages and disadvantages. Follow our tips to get an idea of these risks and their benefits.
Advantages and disadvantages of the deposit
Contributing to this option has an advantage, whether in business real estate or a private rental. The surety system consists of asking the employer for a surety (a relative or a member of the family) to act as surety in the event that the tenant is unable to pay the rent. There are two types of surety: the simple surety (more difficult to assimilate and therefore rarely implemented) and the joint surety which obliges the surety to pay the unpaid rents.
However, it is important to know that this practice involves risks. The disadvantage lies especially in the part where the guarantor refuses to honour the contract and refuses to pay the unpaid bills of his close tenant.
Unpaid Rent Guarantee Insurance (GLI)
If you have chosen this solution for your real estate investment, take into account these few additional details. GLI insurance seems the more guaranteed of the two options mentioned above because it is rather reliable like all existing insurance. The tenant can therefore be covered if:
- The accommodation is degraded by the tenant, and work needs to be done
- The costs of litigation are borne by the insurers
- In the event of an unexpected departure or death of a tenant, insurance can cover the rent at a certain level.
- Declared unpaid rents can be allocated by insurers
Touching this GLI involves a long series of procedures, namely addressing the tenant within a given time by means of a reminder letter and a formal notice. The owner’s compensation is calculated according to the limits listed in the contract.
The disadvantage of this practice is the time taken to approve files, which can be very long, depending on the circumstances and the various studies of the insurers.
To summarize, two alternatives are available to the tenant in order to guarantee the payment of the rents: either by the deposit method or by the intermediary of the GLI insurance or Guarantee of Unpaid Rents. The most reliable remains the second option because a surety can always be the subject of denial, or of bad faith of the guarantor.