09 Nov Strata Insurance
Do I Need Building Insurance For A Strata Unit?
Recognising the shared interest of owners in a strata scheme, the owners corporation will insure all buildings with very few exceptions.
Where an owners corporation has insured all buildings, it is not necessary for an owner to take out strata building insurance, although some lenders may mistakenly request it.
What is covered by strata insurance?
Strata insurance includes all common property and buildings within owners lots, as well as common property assets such as fencing. The cover required is to be the full cost of reinstatement or replacement.
Owners corporations will usually have insurance for common contents such as carpet in a stairwell or assets owned by the owners corporation such as washing machines in a common laundry.
Owners corporations are obliged to have public liability insurance for common property. An example of this sort of coverage would be a claim made by a person who is injured by a fall on common property. The minimum level is currently prescribed at $20 million for claims in the aggregate in any one period (one year) of the insurance.
What does strata insurance cover?
Insurance is for unforeseen events such as storm damage, accidental damage as a result of a fire, or damage by motor vehicle impact. The full details are set out in the Product Disclosure Statement and the policy wording. Your Manager will have a copy of these if you wish to read them.
Are there exclusions?
There is a distinction between maintenance and unforeseen events. Excluded from cover are matters such as:
- gradual wear and tear arising from use such as carpet in a stairwell;
- deterioration over time such as a fence;
- damage resulting from a lack of maintenance such as failing to clean gutters out, which may overflow during a period of rain;
- building defects arising from construction.
An owners corporation should be making provision for maintenance of these items as part of its annual budget.
As the owners corporation insurance is only for buildings, owners contents and chattels are not covered by its insurance.
The public liability cover is for common property only and does not extend for events giving rise to liability within a lot.
Is there a difference between residential and commercial insurance?
Both residential strata insurance and commercial strata insurance cover is for buildings and fixtures. The principal difference is that a commercial property may have additional apparatus such as lifts or air-conditioning which may be subject to particular requirements.
In commercial properties, the use such as an office or a restaurant will affect the risk and the insurer will set the premium based on an assessment of those risks.
Does The Landlord Pay Insurance For Strata Property?
The cost of insurance premium paid by the owners corporation is included in annual budget which are payable by owners.
For a property subject to a residential tenancies agreement, a tenant is not usually required to pay the outgoings and the insurance premium component included in the budget is paid by the owner of the lot.
For a commercial property, the lease may oblige the tenant to pay outgoings such as owners corporation fees, unless capital in nature. As insurance is a recurrent expense, it is not capital, and the tenant may be obliged to pay the insurance premium. However, this is by agreement between the owner and tenant.
The obligation to meet owners corporation expenses rest with a landlord and, even if there is a condition in the lease obliging the tenant to pay the fees including insurance, this does not release the owner of the lot from the responsibility to pay the fees should the tenant fail to do so.
Do I need to take out insurance?
The insurance held by the owners corporation is for buildings including improvements and fixtures forming part of a building, but does not cover carpet and temporary floor, wall and ceiling coverings or any fitting removable by lessee at the end of a lease (which is usually only in commercial properties).
Owners who occupy their lot should have contents cover including public liability within the lot. Landlords are strongly advised to take out landlord’s contents cover which will cover owners fittings such as drapes, and also provide for public liability within the lot; landlord insurance for strata property may differ to what is held by the owners corporation. Owners should advise their tenants or occupiers to have contents cover for their goods and chattels, and public liability cover within the lot. If there are fixtures or fittings removable by the lessee at the end of lease, the owner of the lot and the lessee should agree as to which party will bear the responsibility for the insurance premium.
What if I rent my lot on a short-stay platform such as Airbnb or Stayz?
An owner should consult their insurer or broker to determine if their policy for contents may be avoided if the lot is used for short-stay accommodation. Deliberate rather than accidental damage by a short-term occupier may entitle the insurer to deny the claim on the basis of it not being accidental. Cover may be available in an owners contents landlords contents cover and the holder of the policy should verify this with their insurer or broker.
How do I know if the insurance is adequate?
Owners corporations are required to insure for the full replacement value of all buildings, including owners lots, and are required to obtain a valuation at least every five years. When a valuation is obtained, the level of cover is adjusted in line with that valuation. On renewal insurers will provide a recommended increase in the cover based upon movements in construction costs and a prudent owners corporation will increase its cover accordingly.
Owners or occupiers should make sure that they have adequate contents cover in place and it is a matter for the owner or occupier to determine the appropriate level of valuation as the owners corporation is not obliged to make up any shortfall if an owner or occupier is underinsured.
Who arranges insurance?
A manager has relationships with insurers and brokers who specialise in strata title insurance and can obtain competitive quotations for approval by the owners corporation and if a claim arises, arrange for its processing by the insurer. Naturally, every good strata manager will do their due diligence by sourcing a strata insurance quote from a number of different strata insurance brokers in order to enable a competitive strata insurance comparison.