AN OFFICIAL scheme to guarantee rental payments is being rolled out to more people so as to improve access to the private rental sector for low-income households.
The Garantie des Risques Locatifs (GRL) is a government scheme giving landlords insurance against non-payment of rent. Not widely used until now, under new rules it will largely replace similar policies offered privately by insurers.
Using private insurance policies to guarantee rents has been common among corporate landlords, though less so for those letting only one or two properties. They are offered by the main insurance companies for about 3% of the rent amount.
However they are only available where tenants are in stable work and have an income at least three times the monthly rent.
Those in insecure employment or on a low income often find it difficult to obtain accommodation in the private rental sector because the landlord is unable to obtain insurance.
The reticence of landlords to accept low-income households is said by many to be the main reason why tens of thousands of properties across France are empty. In an attempt to overcome this, in 2007 the government introduced the GRL.
Under the scheme, a prospective tenant who is unable to meet the eligibility criteria can apply to a government agency for a rental guarantee – it then acts as an insurer of last resort for the rent.
Private insurers are then able to offer the landlord insurance, knowing their risk is being covered by the government-backed fund.
Insurance premiums are 2.5% of the rent and the guarantee is valid as long as the rent is not more than 50% of the tenant’s income.
Until now the idea has not taken off in the way the government had hoped, mainly because only a handful of insurers signed up to it, largely due to reluctance to concede control of their insurance products to the state. Many landlords have also been sceptical, partly because their relations with the state have historically often been difficult.
Around 150,000 tenants are currently covered by the GRL, although potentially up to two million would be eligible.
To boost use of the scheme, the government is now to generalise the GRL so it will no longer only be for those in precarious employment or who spend more than a third of their income on rent.
What is more, insurance companies will now have to offer this, not other private rental guarantee policies, apart from where the tenant pays more than €2,000 rent per month or (as before) where the rent represents more than 50% of the tenant’s income.
Such a single, universal scheme of rental guarantee, underwritten by the government, was one of President Sarkozy’s election promises.
Under the terms of a deal agreed between the insurers and the government agency 1% Logement, the government will provide a guarantee to all tenants with the provisos mentioned above. The premium payable by the landlord will remain at 2.5% and it will be a deductible expense.
The scheme will offer a maximum rental guarantee of €70,000 (including legal costs), in addition to a guarantee of up to €7,700 for damage to the property.
This follows a trend of the government legislating about the way landlords try to secure their rents – for example they have been banned from setting deposits above the value of a month’s rent.
As an alternative to taking a policy with the GRL, guarantee landlords would still be able to ask the tenant to provide a guarantor (for example a family member) but they should not do both.
International tenants are eligible for the GRL. It can be used in connection with both furnished and unfurnished lettings.
Responsibility for indemnifying the landlord will theoretically be shared.
The insurers will pick up all claims where the rent is no higher than 28% of the tenant’s income, after which it is the government that is obliged to pay out.
In reality, however, the insurers will pick up most of the costs, as a percentage of each insurance premium will be paid into a fund to cover the “government’s” part. As the insurers seem unimpressed, it remains to be seen just how things will work out.
During negotiations, landlords also expressed fears that the demands on the fund could outstrip the resources available.