Insurance for a Body Corporate

Body corporate properties are made up of individually owned lots or units and common property.

A body corporate property could be a duplex, residential unit block, high-rise accommodation complex, shopping complex or business park. It could also be a larger plan that includes townhouses and freestanding houses.

Owning a lot in a property with a body corporate brings certain obligations beyond those of owning a detached house. You should carefully consider whether living or investing in a property with a body corporate suits your lifestyle and financial needs. When you buy a lot that is part of a body corporate property, you are automatically a member of the body corporate.

You cannot opt out of being a part of the body corporate.

Whether you own a commercial or domestic strata property, landlords often question the necessity of having their own property owner/landlord liability cover, believing that their tenants’ insurance or strata insurance suffices. However, the reality is not as simple, understanding the implications of not having separate property owners liability coverage is important.

For example, when an injury occurs on your property, legal teams will immediately investigate and identify all potential parties to sue. This means that even if your tenants or your strata complex have insurance, once you are named in a court notice as owning the property, you will need to have a dedicated insurance policy to protect yourself and your assets.

What is Strata Insurance?

Strata Insurance helps body corporate committees in a wide variety of industries protect their assets. However, while strata insurance policies can protect the body corporate against potential lawsuits, they typically only cover common areas and the building’s exterior. Unfortunately, they often do not cover individual units or specific liabilities associated with them, leaving you exposed to risks related to your unit or commercial space. It’s up to you to hold insurance to protect your asset ie your lot within the property with either a Commercial Property Owners Insurance policy or a Landlords Policy.

Building Insurance and valuation

Queensland legislation requires a body corporate to have insurance for:

• common property
• body corporate assets
• public risk
• every building which contains a lot.

The insurance a body corporate must have is affected by the type of survey plan the scheme is registered under.

The 2 common types of survey plan are:

• building format
• standard format.

Contact Titles Queensland to get a copy of your scheme’s registered survey plan.

Buildings in a building format plan

Schemes that are registered under a building format plan of subdivision are usually multi-storey buildings like blocks of residential units. Some townhouses can also be registered under a building format plan of subdivision.

In this type of scheme, a body corporate must insure (for the full replacement value) each building that contains an owner’s lot (e.g. a unit or apartment).

Buildings in a standard format plan

Schemes are usually registered under a standard format plan of subdivision if they are low-rise developments. An example is a townhouse complex where there is a building on each lot with a backyard or courtyard.

The body corporate must insure (for the full replacement value) each building that shares a wall with another building (known as a common wall).

The lot owner is responsible for insuring their own building if it is:

• free standing—does not share a common wall with another building
• registered under a standard format plan.

Optional building insurance

The body corporate can set up a voluntary insurance scheme to insure buildings that do not have common walls.

The owner of a lot with a free-standing building does not have to take part in a voluntary insurance scheme.

An owner who does take part in a voluntary insurance scheme must:

• tell the body corporate the replacement value of the building to be insured
• comply with the
  • body corporate decision to setup the voluntary insurance scheme
  • insurance policy.

Each owner who takes part in a voluntary insurance scheme must pay part of the insurance premium—the fee paid to the insurance company.

What the policy must cover

The building insurance which a body corporate takes out must cover:

• damage to the building
• other costs to reinstate or replace the insured buildings (e.g. professional fees and costs for removing debris).

Under the insurance policy the property must be returned to new condition. The body corporate can take out extra building insurance for things like floods. A motion to do this would have to be passed by ordinary resolution at a general meeting.

Valuation

If the body corporate has to insure 1 or more buildings, it must get those buildings valued for the full replacement cost. An independent valuation must be done at least every 5 years.

Each owner must pay part of the cost to have the property valued. How much they pay depends on their share of the building insurance premium.

The body corporate collects money for the cost of valuations as part of the owner contributions to the administrative fund. These are collected each year.

Insurance definitions

The legislation defines the terms building and damage.

Building definition

A ‘building’ includes any improvements made to the building and fixtures added to the building. It does not include:

• temporary wall, floor and ceiling coverings, carpets
• fixtures that can be removed by a lessee or tenant at the end of a lease or tenancy
• mobile or fixed air conditioning units for a particular lot
• curtains, blinds or other internal window coverings
• mobile dishwashers, clothes dryers or other electrical or gas appliances that are not wired or plumbed in.

Damage definition

Damage includes:

• earthquake, explosion, fire, lightning, storm, tempest and water damage
• glass breakage
• damage from impact, malicious act and riot.

Getting insurance information

At its annual general meeting each year the body corporate must give owners information about its insurance policies and any valuations that have been done.

Details for the valuation must include the:

• date of the valuation
• full replacement value of the buildings.

Find out what insurance information the body corporate must give to owners at the annual general meeting.

Insurance premium and excess

A body corporate must take out insurance for its community titles scheme. Each owner must pay part of the costs for that insurance (i.e. the premium).

The body corporate collects money for the insurance premiums as part of owner contributions to the administrative fund. These are collected each year.

Premiums for building insurance

How much you (as an owner) pay towards the building insurance depends on what type of survey plan your body corporate scheme is registered under.

Contact Titles Queensland to get a copy of your scheme’s registered survey plan.

Read more about building insurance.

Building format plan

If your scheme is registered under a building format plan (or volumetric format plan of subdivision), your share of the insurance premium is based on the interest schedule lot entitlements.

Standard format plan

In a standard format plan, if the body corporate has to insure buildings with common walls, your share of the insurance premium relates to the cost of reinstating the buildings on your lot.

If your body corporate sets up a voluntary insurance scheme, and you decide to take part, you must pay an amount that relates to:

• the value of your building as a part of the total replacement value of the buildings insured under the policy
• what you do on your lot and how that affects the total risk covered by the policy (e.g. if you store chemicals which could be a fire risk).

Adjusting building insurance premiums

In some cases the body corporate can change the amount an owner pays towards the insurance premium.

The body corporate can do this if:

• the lot has better fittings and fixtures than other lots and that affects the premium
• improvements have been made to the common property which benefit the lot and that affects the premium
• what is done on the lot increases the total risk covered by the insurance policy (e.g. you must pay more if you store flammable chemicals for your business, and the insurance premium is higher because there is a greater fire risk).

Premium for common property and assets insurance

What you pay for insurance of the common property and body corporate assets is based on the interest schedule lot entitlements.

Premium for public risk insurance

What you pay for body corporate public risk insurance is based on the contribution schedule lot entitlements.

Changes that affect insurance premiums

Improvements to lots

You must tell the body corporate if you make improvements or changes that could affect the insurance premium.

This includes improvements to:

• your lot
• the common property, for the benefit of your lot

or

• an area of common property where you have exclusive use.

You must give the body corporate details of the improvements and how much they cost.

This must be done as soon as possible after the improvements have been made.

If you do not tell the body corporate, you may have to pay for any repair or replacement costs that are not covered by insurance.

Use of lots

You must give the body corporate details if your lot is used in a way that is likely to affect the premium for the body corporate’s building insurance or public risk insurance.

Excesses

The body corporate can decide to take out an insurance policy where an excess has to be paid on an insurance claim. An excess is an amount of money paid (by the body corporate or an owner) towards a claim you make on the insurance policy.

The excess must not create an “unreasonable burden” on the owners of individual lots.

Who pays the excess

Who pays the excess on an insurance claim depends on a number of things. For example, if the body corporate claims on its insurance because a lot has been damaged by water from a leak in that lot, the lot owner would normally pay the excess.

However, if the damage to the lot happened because the body corporate did not properly maintain the common property, it would be reasonable for the body corporate to pay the excess.

As a guide, if the event affects:

• only 1 lot—the owner should pay the excess unless the body corporate decides that it is unreasonable for them to do so
• 2 or more lots—the body corporate should pay the excess unless the body corporate decides it is reasonable for the excess, or a portion of the excess, to be paid by 1 or more of the affected lots
• 1 or more lots and the common property—the body corporate should pay the excess unless the body corporate decides it is reasonable for the excess, or a portion of the excess, to be paid by 1 or more of the affected lots.

What if you rent out your lot?

Relying solely on your tenant’s insurance exposes you, as the commercial or residential landlord, to significant risks. For example, is the policy actually in force and paid for? Did your tenant let the cover lapse?  Has your tenant correctly disclosed their own information and set up a valid policy in the first place? A tenant’s business liability is far more complex than a landlord liability cover which can protect you comprehensively, easily and affordably.

Another potential risk is when your tenant is suing you because they injured themselves. Even if you set up a policy in joint names to protect you, the policy will not generally respond to protect against one insured suing the other under the same policy unless you have specifically requested and incorporated a cross-liability clause. For the hassle and expertise required to organise this type of cover, you are better off setting up a simple policy yourself.

A Claim Example

Take the example where someone tripped in the car park whilst visiting the tenant’s shop. Solicitors proceeded to send notices to the body corporate, the tenant and the landlord. The contribution notices named the trust entity of the landlord and neither the tenant’s insurer nor the body corporate policy responded to protect the landlord’s entity.

Fortunately the landlord had a basic Commercial Property Owners Liability policy in place to protect their entity. There was no real reason they should have been liable as they had no control over what happened. Having a basic liability policy protected them from having to defend themselves because they were named in the action. The landlord’s insurer negotiated with both the tenant’s and the strata insurer, providing a settlement to make the matter go away.

In this example, having a basic liability policy specifically for the landlord protected them from having to defend themselves unnecessarily.

 

Separate property owners liability coverage is essential to protect yourself and your assets from unforeseen liabilities and legal actions. Relying solely on tenants’ or strata insurance can leave you exposed to risks which a commercial property owners or landlord liability policy can easily mitigate.

The Queensland Government supplies information on Body Corporates and Insurance here.