Whether you are a Strata Manager, Council Member, or Strata Owner, it is important to protect your investments from the many risks effecting Residential and Commercial Strata’s in Australia.
What is in a Strata Property insurance policy?
The foundation of a Residential or Commercial Strata policy is based on covering the Building and Legal Liability for Strata Corporations and their owners. Traditionally this covers the Owners from Loss or Damage to the Building and Common Contents as well as indemnifying the Body Corporate for sums they become legally liable to pay with respect to third party property damage and personal injury which occur at the premises or within Australia.
Strata Insurance policies have evolved to include a wider scope of coverages, such as:
- Loss of Rent/Accommodation: If a unit becomes uninhabitable following an insured event, the owner can claim for loss of rent or alternative accommodation whilst the premises are unfit for occupancy.
- Catastrophe Following a Catastrophic Event (i.e. earthquake, bushfire, tsunami, or cyclone): an additional sum can become available to assist in the escalating costs of the claim. The limit of insurance for this cover is usually either 15% or 30% of the building Sum Insured value.
- Office Bearers Liability: This coverage protects the members of the committee (which may include the Strata Manager acting on the committee’s behalf) against the liability and legal costs (up to the sum insured) where liability has arisen from an alleged or wrongful act, omission, or breach of duty (fraudulent acts are not insured under this section).
- Fidelity Guarantee Protection: This coverage is for the Owners Corporation against fraudulent embezzlement/misappropriation of the Owners Corporation’s funds and assets.
- Voluntary Workers: This insures voluntary workers against bodily injury, inability to work, or death as a result of an accident which occurs while they are undertaking voluntary work for the strata company.
- Audit Costs/OHS Breaches: Covers professional costs in connection with the ATO and the Office of Business and Consumer Affairs as well as the legal expenses incurred in appealing against an improvement or prohibition notice brought under any workplace, occupational health, safety, or similar legislation.
- Legal Defense Expenses: Covers legal defence costs where the Strata is joined in litigation with another party, as well as the costs of expenses incurred in defending actions brought against the Body Corporate.
- Lot Owners Improvements: This coverage is for fixtures and structural improvements installed or upgraded by Lot Owners for their exclusive use.
- Machinery Breakdown: Provides protection against unforeseen physical destruction/damage to electrical, electronic and mechanical machinery and plant – also includes lifts, elevators and escalators.
- Workers Compensation: Indemnifies the Body Corporate for legal liability to their employees under workers compensation legislation. A good example of this being relevant: if a tradesman has an accident on a complex with no WC cover, the liability could fall back on the Strata.
Key Areas of Focus in Strata Property Insurance
Insuring to Value
To ensure a claim is fully paid by the insurer, it is important that the property is valued at its full replacement cost. We recommend having a professional insurance replacement cost valuation completed every 3 years to keep the value up to date
Common contents are covered through a Strata policy include:
- Contents owned by the Strata Company, such as common area furniture, paintings, poolside chairs, and gym equipment.
- Lot Owners Improvements: For example fixtures or structural improvements installed by a lot owner for their use. These fixtures must be permanently attached or fixed to the building, becoming legally part of it. Floating Floors are generally not included in this section but can be included for an additional premium.
Personal contents are not covered under a Strata policy, such as:
- Tenant’s Contents: Tenants should purchase their own Renter’s Contents policy to protect their personal belongings and liability whilst living in the unit.
- Unit Owners Contents (Owner-Occupied): Owner Occupiers should purchase a Contents policy to protect their personal belongings and liability whilst living in the unit.
- Landlords Contents: Whether the unit it is being rented out for Commercial or Residential purposes, a Landlords policy will be necessary for this coverage. The Landlord policy insures the unit owner’s contents that the tenant is utilising (i.e. printer, fridge, furniture etc.) as well as Liability as a Landlord.
Benefits of a Landlords Policy
In addition to contents insurance protection, a Landlords policy also provides protection against a tenant defaulting on rental payments, something the Strata policy does not insure against.
A Landlords policy will typically respond if;
- The tenant decides (for whatever reason) to no longer pay rent.
- Is evicted.
- Simply abandons the unit and lease.
Most policies automatically cover fusion of electrical motors under 5HP in the Insured Property section. Smaller strata complexes with small wall mounted AC units may not require this cover. Larger strata complexes with lifts, elevators, chillers, boilers, or any other large type of electronic or mechanical machinery are recommended to include Machinery Breakdown cover on their policy.
Cover for the insured machinery is usually subject to a current comprehensive maintenance agreement being in place. The effects of wear and tear, corrosion and poor maintenance will likely prevent the policy responding to any claims made under this section.
Differences in Strata & Landlords Policies
Available in Strata Policies
Temporary Accommodation: The Strata policy will respond if the unit owner requires temporary accommodation following a loss, provided that the unit was owner occupied and the loss renders the unit uninhabitable.
Loss of Rent: The Strata policy will respond if the unit owner requires suffers Loss of Rental Income following a loss, provided that the unit was tenanted and the loss renders the unit uninhabitable.
Available in Landlords Policies
Rental Income loss: If a tenant breaks their lease and leaves the unit, the Strata policy will not respond for any financial loss of the rental income.
Tenant Injury: The landlord may be liable for damages if their tenant is injured in the owner’s unit.
Landlord’s Contents: Coverage for Landlord’s contents that are in the unit for use by the tenant (e.g. White Goods) are available through a Landlords policy, as a Strata policy will not respond for this coverage.
Why should I contact KBI?
At KBI we have leveraged our networks, strong relationships, and our depth of knowledge of the strata space to customise insurance solutions for Developers, Property Managers and Property Owners.
As experts in this area of insurance, we work closely with our clients to understand their unique needs. We then approach insurance companies on your behalf, getting a range of coverage and pricing options. Next, we compare these options and present our recommendations to you. Finally, we secure the insurance that you select and review it with you annually.
Our Key Strata Insurers
Learn even more about Strata Insurance
When we said we were experts, we weren’t joking. Presented below are several articles that we’ve prepared specifically on the topic of Strata Insurance. Take a look at these articles at these articles and contact us if you have any questions or if you’d like to speak further.