New rules for Rent Guarantee Insurance

The Superintendence of Private Insurance (“SUSEP”) published Circular No. 671/2022, which establishes rules and criteria for the development and marketing of Rent Guarantee Insurance plans.

The new Circular repeals SUSEP Circular No. 587/ 2019, which has been previously amended by SUSEP Circular No. 594/2019. However, the new Circular only updates references and adapts the text of previous rules, without any changes on the merits.

The rule establishes the provisions for Rent Guarantee Insurance, which is intended guarantee payment of compensation to the Insured for any possible damages resulting from the breach of contractual obligations set forth in the property lease agreement.

Thus, in the same terms provided by the previous rules, the Circular reinforces the following points:

• Coverage:

The basic insurance coverage is mandatory and protects the Insured against defaults on rental payments.

However, the insurance plan can provide other coverage to guarantee other obligations of the Lessee provided in the lease agreement.

It is also worth noting that coverage is restricted to risks resulting from property lease agreements in Brazilian territory.

Contracting more than one Rent Guarantee Insurance to cover the same lease agreement is prohibited.

• Ancillary Contract:

The insurance is an ancillary contract to the lease agreement, and, therefore, it should respect the clauses and specific rules related to such lease agreement, under penalty of liability of the Insurer and Insurance Broker.

The obligations of the Lessee will be guaranteed by the basic insurance coverage.

• Insurance policy:

The insurance can be contracted by individual or collective policies.

In addition to the minimal information, the policy must contain the identification of the Insured (Lessee), percentage and the policyholder’s remuneration.

• Insurance broker:

If there is an insurance broker involved, the percentual and amount of the brokerage commission applied to the policy must be informed, whenever requested by the Lessee.

• Mandatory content of proposal and contractual conditions:

The following information shall be mandatorily inserted in the proposal and contractual conditions:

1. 1. “The Rent Guarantee Insurance must guarantee the damages suffered by the Lessor as a result of the default of the Lessee.”
   2. “The Rent Guarantee Insurance does not exempt the Lessee from any obligation established in the lease agreement.”
   3. “The premium is the amount paid to the Insurer so that it assumes the risk of default of the Insured, which will not be returned to the Lessee at the end of the policy term.”
   4. “Failure to pay the premiums may result in adjustment of the policy term, suspension of coverage or even cancellation of the policy. In order to maintain the original policy coverage, the Insured may pay the defaulted premiums.”
   5. “The Insured or the Lessee may request, at any time, that the Insurer or Insurance Broker, if any, inform the percentage and amount of the brokerage commission applied to the policy.”

• Effectiveness:

The effectiveness of the Rent Guarantee Insurance is the same as the lease agreement.

• Policy limits:

The limits will be defined upon agreement between the Insured and the Lessee, in accordance with the lease agreement.

• Amendments to the lease agreement:

The Insurer must make clear, in the contractual conditions, the rules and procedures to be adopted in the event of changes in the lease agreement.

In the event of an amendment, the policy must also be amended by issuing an endorsement, if it is accepted by the Insurer.

• Premium:

The Lessee is responsible for paying the insurance premium.

In case of non-payment, the Insurer shall notify the Insured, who may pay the premiums.

• Expectation of Loss:

In case of an expectation of loss, the Insurer may provide the payment of advances to the Insured, corresponding to the defaulted amounts, until the loss is characterized.

• Loss:

The loss can be:

1. 1. eviction decree;
   2. abandonment of property;
   3. friendly handover of keys.

The date of the loss will be considered the first date regarded to the loss expectation period, which corresponds to the first default of the Lessee.

• Indemnity:

The indemnity will be calculated based on the losses verified until the date:

1. 1. provided in the decision that decrees the voluntary eviction of the property or the date of voluntary eviction, whichever occurs first;
   2. in which the Insured was granted possession of the property, in the event of abandonment;
   3. from the receipt for handing over the keys, in the case of friendly handover.

• Coverage for physical damage to the property:

If this coverage is contracted and in case of disagreements about the assessment of the damage, the Insurer must propose to the Insured the appointment of an independent expert, through written correspondence or other legal means, within a maximum period of 15 days (counting from the date the objection is presented by the interested party).

The expert will be paid, in equal parts, by the Insured and the Insurer.

The new Resolution came into force on September 01, 2022.

Demarest’s Insurance, Reinsurance, Health and Private Pension team is available to provide further information on this and other related topics.