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rent default

Rent Default: The Hot Topic in Commercial Property

The recent economic landscape shift in Perth has seen so many small to medium businesses close down or even go insolvent, with those connected to the resource sector feeling the pain more than others.

This has put a significant amount of pressure on landlords, with tenants abruptly breaking leases that are not easy to fill at the past lease rates.

CGU’s Padlock policy has been a market leading product with regards to Rent Default cover. This cover can also be added to an existing Commercial Strata policy, or included in the Padlock policy if the Commercial Property is also insured.

Demand for this cover is building and has caused other insurers to include this cover into their offerings under various policy types. For example, some insurers now include limited Rent Default cover under their Industrial Special Risk (ISR) offering.

Rent Default insures the property owner if the tenant:

Breaks lease without notice

Is legally evicted

Fails to pay rent

In a claims scenario, the owner is required to show the insurer that they have taken the relevant legal steps to remedy the situation before any claim can proceed. There is also a 4-week excess (waiting) period before any claim can be processed. If the claim is deemed viable, it is then paid out over a 26 week period.

Below is a typical breakdown of how much and for how long rental income is paid by the insurer:

Period of Rent Default


Weeks 1 to 4

No amount payable

Weeks 5 to 12

100% of rental income

Weeks 13 to 26

75% of rental income

Weeks 27 and beyond

No amount payable

Why risk losing out on huge sources of income when it can be transferred to the insurance policy?

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