Activating the "unpaid rent" guarantee? Reminders & questions
Observation: the current health crisis could lead to economic difficulties for some tenants, making it impossible for them to pay their rent.
Consequences: some landlords, whose financial or condominium fees continue to accrue, risk finding themselves in difficulty if they no longer receive their rent payments.
Purpose of the "unpaid rent" guarantee : to cover late payments of rent and/or charges and to cover non-payment of rent and/or charges
Question : Can a landlord who has taken out "unpaid rent" insurance (known as "GLI") turn to their insurer to claim the benefit of this insurance if their tenant stops paying rent?
Answer : In principle, yes, but the adoption of the emergency law in response to the Covid-19 epidemic could change the situation for owners of commercial premises
Situation before the adoption of the emergency law to deal with the Covid-19 epidemic
How rent guarantee insurance works : the insurer guarantees the owner to receive unpaid rent and charges and to cover any unpaid security deposit (in the case of staggered payments)
Rent Guarantee Insurance (GLI) Amount : Repayment amounts are generally capped at a monthly amount and a total amount
Duration of the rent guarantee insurance (GLI) : the guarantee ends, in particular, upon expiry of the notice period, upon full repayment of the owner's debt, or when the guarantee limit is reached.
Additional guarantee: generally, rent guarantee insurance also covers the costs of debt collection and/or eviction (bailiff, lawyer, locksmith, movers, storage, etc.) incurred by the landlord due to the tenant's actions.
Situation since the adoption of the emergency law to deal with the Covid-19 epidemic
Reminder of the provisions of the emergency law regarding rents:
" The Government is authorized to take by decree (...) any measure (...) allowing for the full postponement or spreading of rent payments for professional and commercial premises (...) for the benefit of micro-enterprises (...) whose activity is affected by the spread of the epidemic."
Effects : some tenants of commercial premises could soon benefit from rent deferral mechanisms, allowing them to suspend payment of their current rent (according to terms which still need to be defined)
Problem : Most rent guarantee insurance policies (GLI) terminate if rent payments are suspended due to legal or regulatory measures
Consequences: Landlords of commercial premises who have taken out rent guarantee insurance risk losing the benefit of this insurance in cases where their tenants' rent arrears result from the application of upcoming legal deferral mechanisms.
