for everything you need to know about strata...

"STOP!  Whatever you do, don't get caught out by failing to take out the right Strata Insurances!  There are several types of Strata Insurances required and I've put together a short list for you.  Always make sure you check your requirements with an insurance company or broker that specialises in Strata Title.  And don't forget to follow the highlighted links to get some additional facts."

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STRATA INSURANCE REQUIREMENTS

• Must haves...
• Building Cover
• Insured amount
• Special conditions for 2-lot schemes
• Public Liability
• Workers Compensation
• Voluntary Workers Insurance
• Contractors Insurance
• Officers Liability Insurance
• Misappropriation
• Contents Insurance for Lot Owners
• Mortgage Insurance for Lot Owners

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Must haves...

In general terms, an Owners Corporation is responsible for the following main insurances :

• The main building and any outbuildings
• Public liability
• Workers Compensation
• Voluntary workers cover

Here's a really cute video summarising what strata insurance is and does - so have a look.  It only goes for 2 minutes.  BTW, I love these cartoon style videos. NIBA explains Strata Insurance.

Everything you need to know, according to the NSW Strata Schemes Management Act 2015, can be found in Part 9 - Insurances: Sections 160 to 175  especially Section 164  and Section 165.

The NSW Strata Schemes Management Regulation 2016 provides 3 references to Insurance and these can be found in Part 6 - Insurance: Regulations 38, 39 and 40

SPECIAL NOTE - If a Strata Manager is arranging the insurances then no less than 3 quotations for each type of insurance must be submitted to the Owners Corporation OR if there are less than 3 quotes, the reasons why must be provided in writing.
See NSW SSMA 2015 - Section 166

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Building Cover

The Owners Corporation has a duty to cover all buildings in the Strata Scheme under a Damage policy with an approved insurer.  The 'building cover' includes not only the structure but also the common property fixtures and fittings such as carpets in common areas, common property hot water systems, light fittings, toilet bowls, sinks, shower screens, cupboards, internal doors, stoves, common air conditioning systems and intercom systems, etc.

Damage Policy requirements are outlined in the NSW Strata Schemes Management Act 2015: Section 161 - Requirements for Damage Policy.

Insured amount

In the NSW Strata Schemes Management Act 2015: Section 161-Requirements for Damage Policy (see link just above) there's a prescribed method detailing what's to be included when calculating the sum insured for the Damage policy.  Just click on the link in the small box above to see the details but, in simple terms, the amount is calculated by using the estimated cost of:

• Replacement or rebuilding of the building if the building is destroyed
• Repairing or rebuilding of any damaged parts of the building if the building is damaged but not destroyed
• Removal of all debris
• Professional fees for architects, engineers and other persons whose services are necessary

Details about the 'minimum amount of cover' can be found in NSW Strata Schemes Management Regulation 2016: Regulation 39 - Calculation of insurance limit under damage policy.

IMPORTANT - A valuation of the building SHOULD be carried out on a REGULAR BASIS(and I've heard that at least once every 5 years is a decent' rule of thumb with the building subsequently insured for the new valuation amount.  This valuation MUST be carried out by a qualified valuer or quantity surveyor.

NOTE: Regular valuations are important because construction costs change and the cost to rebuild the property always increase over time.  Also, another important thing to take into account is if there've been kitchens and bathrooms upgraded throughout the building.  In one particular strata scheme (that will remain nameless), there were 5 bathrooms upgraded with imported italian marble at a cost of $50,000 per bathroom. Things like this WILL dramatically impact the replacement cost of the building - so watch out for this kind of 'trap'.

Special conditions for 2-lot schemes

This building cover requirement doesn't apply to 2-lot schemes (previously referred to as small strata schemes) where the buildings are detached and no building or part of the building in the Strata Scheme is situated outside those lots.  However the 2 owners must decide, by unanimous resolution, that the Owners Corporation will NOT be taking out building insurance.

NSW SSMA 2015 Section 160: Part4 describes the 2-lot conditions.

IMPORTANT - EXTREME CARE must be taken before the decision is made to reject building cover.  While it might SOUND good and while it might save your scheme a few dollars, the long term implications - if anything does go wrong - could be financially disastrous.  The exposure to a number of risks is very real.  So, be warned...AND ALWAYS consult an Insurance broker who specialises in Strata

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Public Liability

The Owners Corporation is required to insure against death or injury to a person or damage to property for which the Owners Corporation could be held responsible.  The minimum cover is currently $20,000,000.
See NSW SSMR 2016: Regulation 40 - Insurance amount.

Tip - Public Liability insurance should also be considered by individual lot owners (for their own lot) for any 'special circumstances' involving their lot and not covered by the insurance taken out by the Owners Corporation.  There are many war stories of owners being 'caught out' when the unusual or unexpected happens.  So make sure you find out what is and isn't covered under the insurance put in place by the OC and take any appropriate action.

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Workers Compensation

Workers compensation insurance protects employers and injured workers from financial costs when a worker (i.e. an employee) sustains a work-related injury or disease.  This can be a bit of a 'grey area' since Safework NSW states that "A strata title body corporate (or owners corporation) responsible for any common areas used only for residential purposes is generally excluded from the WHS laws, unless it EMPLOYS a worker".  Contractors are NOT considered 'employees' and so Workers Compensation Insurance is NOT required to be taken out for these contractors.  On the other hand, it also states "Where the common areas are mixed residential and commercial it is likely the WHS will apply".

This is in the Safework NSW section on Legal Obligations for Strata Title and Body Corporate which discusses the WHS requirements for strata.

HINT: If you use the above link take special note of the MAIN MENU ITEMS across the top of the page.  Hovering over these items will open up BIG sub-menus and give you access to everything to do with WHS - and I DO mean everything...

Therefore, if you employ a building manager or a full-time gardener (who perhaps lives at the complex), you will probably be up for Workers Comp insurance (WCI).  Where it gets a bit trickier is where you have a mixed residential and commercial scheme so make sure you check with your insurance broker or insurer before deciding.

• WCI IS in there (if you need it)
• you DO actually need WCI

Another BIG Tip - It's a very tricky process to determine whether or not someone is an employee or a contractor.  Different definitions apply for various jurisdictions - workers compensation, superannuation, taxation, workcover, etc - so ALWAYS ALWAYS ALWAYS check with your insurer, insurance broker and/or strata manager.  Never just guess.  And always look for an insurance broker or insurance company that specialises in Strata

Here's an example of Strata Unit Underwriters Strata Unit Underwriters Residential Strata Insurance Cover.  This one is pretty comprehensive and you'll see it covers just about everything...

And for those of you with in a Commercial Strata - Strata Unit Underwriters Strata Unit Underwriters Commerecial Strata Insurance Cover.

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Voluntary Workers Insurance

The Owners Corporation must insure, with an approved insurer, against any damages that it may become liable for when a person does voluntary work for the Owners Corporation in the building or on the common property.  A voluntary worker is any person who does work without receiving or expecting to receive any fee or reward.  Again, your insurance broker or insurance company can provide full details on this type of cover.

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Other Insurances to consider

Contractors Insurance

While it's not law in NSW for contractors doing work to have the proper insurances, allowing uninsured contractors onto your scheme to do work is simply asking for trouble.  There'll be no problem if nothing goes wrong, but that's what having insurance is all about - protecting both parties against the 'unexpected' AND, if something unfortunate DOES happen and the correct insurances are NOT in place along with poor WHS conditions then the Owners Corporation could be held liable.
So, if you want to be totally safe, please:

• do NOT use uninsured contractors no matter what the situation
• do NOT use 'friends-of-friends' or 'handy' owners to work for the scheme unless they are insured
• check and make sure the contractor's insurance is valid (i.e. not expired)
• make sure the contractor has public liability cover

NOTE - This also goes for the 'keen' lot owner in your scheme who wants to 'mow the lawns' OR 'do the gardens' OR 'do handyman type repairs for the scheme' to save money.  Having the proper insurance is still critical in this instance because accidents can always happen at any time.

For more details on just how dangerous using uninsured contractors can be have a look at my Ongoing Maintenance and Repairs information page - specifically look at the "Just image this scenario for a moment..." section.

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Officers Liability Insurance

Under the previous legislation, Strata Committee members or "officers" were personally liable if anything went wrong and this was a major deterrent to being on the committee - for obvious reasons - and Officer's Liability Insurance was recommended to protect the Strata Committee Officers in the event of a problem.  However (thankfully) current legislation (NSW SMAA 2015) has eased a lot of the 'litigation concerns' for strata committee members so everyone can breathe a bit easier.

The section which outlines this is Section 260 - Personal liability of the NSW SSMA 2105 BUT this doesn't mean it's a 'free-for'all' and anybody can get away with anything.  Committee members will still be held accountable if they do something really bad or act against professional advice so it's ALWAYS good practice to have this insurance just in case.  I'm a HUGE believer in the slogan: "Better to be safe than sorry".  And Section 37 - Duty of Members of Strata Committee of the SSMA 2015 keeps the committee members on their toes.

WARNING - If you still feel you want to take out this type of insurance then be aware there are quite a few exclusions in this type of policy - one of which is fraud - so please makes sure you know what you are and are not getting.  However, it's advisable to consult your insurance broker for advice in this tricky area.

While this insurance is not compulsory, for the small amount of premium relative to the amount of cover, it makes a lot of sense for the Owners Corporation to take out this type of cover.  It also brings a sense of 'comfort' to those who have volunteered to be on the Strata Committee, knowing there's some sort of protection in case the worst comes to the worst.  Just remember that, regardless of whether or not the insurance IS taken out, a motion to consider obtaining such cover must be included in the agenda of each Annual General Meeting (AGM).

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Misappropriation

The Owners Corporation also has an option of taking out insurance against the fraudulent embezzlement or fraudulent misappropriation of Owners Corporation's money (i.e. funds set aside for management of the scheme) and/or property.  This type of insurance is usually referred to as Fidelity Insurance and is quite different to Officers liability insurance so, again, make sure you get complete details on this type of insurance from your broker or insurer.

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Contents Insurance for Lot Owners

This type of insurance is probably the one most people are familiar with and lot owners should carefully consider taking out contents insurance to ensure their property (i.e. their lot) is protected from damage, fire, theft or loss.

Everything within the lot, which doesn't form part of the building, should be insured under a contents policy.  Items such as furniture and furnishings, floor-coverings and wall-coverings, light fittings, clothes, appliances and equipment, paintings, personal items and so on should all be covered under a contents policy.

Often there's much confusion as to whether some items are covered under the Owners Corporation's insurance or whether they're covered under the owner's contents policy.  Therefore owners need to discuss these issues with both the insurer (or broker) AND the Strata Committee PRIOR to taking out a policy so that it's very clear, right from the outset, what's covered by what insurance.

It's also very sensible to have the contents insurance with the same insurer the Owners Corporation uses.  Some insurers might offer a discount if it's all together so there's no harm in asking.  Even the OC could ask the insurer if they'd be prepared to offer a bulk discount to any lot owners willing to take out contents cover with them...you can thank me later.

An IMPORTANT TIP - it's no good waiting until something happens only to find out that the insurance you signed up for doesn't quite go far enough leaving you 'out of pocket' if something happens so make sure you know all the details well ahead of time.

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Mortgage Insurance for Lot Owners

The mortgagee of a lot may also require the borrowing owner to take out specific insurance cover as part of the loan.  Just be aware that this insurance covers the lender (in case you default on the loan) and not you and that this insurance is mandatory in most cases - especially when the 'loan-to-value-ratio' is high.  Please contact your lender for more details on this cover.

Another IMPORTANT TIP - For all sorts of strata insurance, it's always best to contact an insurer or insurance broker that specialises in strata insurances.  Like with most things, it'll save you lots of time, money and hassle in the long run to deal with someone who really knows what they're doing.

Yet ANOTHER TIP - Not having the correct insurances or enough cover can prove to be an extremely costly exercise IF anything just happens to go wrong.  As the old saying goes:  "It's much better to be safe than sorry".  So make sure you and your contractors have the correct insurances AND that there's enough cover.

After all, insurance has a very specific purpose and it's definition says it all....
.....to protect the financial well-being of an individual, company or other entity in the case of unexpected loss

IMPORTANT DISCLAIMER
The above comments about insurance are of a general nature only and intended as a guide only and is not to be considered as advice.  Specialist advice should be always obtained from an insurance advisor or insurance broker in relation to your specific strata scheme and circumstance before taking any action.

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Strata Title Terms and Jargon

If you need to know the meaning of one or more of the common terms mentioned above then have a look at the Strata Terms and Jargon Information page.

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