Body Corporate Insurance Explainer II

In the last article I explained that the lot owners in a body corporate (strata) don't actually own their own lot - the lot owners own share in a common enterprise which gives them exclusive use of a particular lot. This has implications for insurance, with the most important being the difference between what the body corporate is responsible for, and what the lot owner herself must insure.

What does the body corporate insure?

1. All buildings and their improvements on the original deeds.
2. Common property (e.g. pool equipment, maintenance shed, common area contents & decorations).
3. Public liability risk for the buildings and common property. NB: this does not include the lot owner's own personal liability.
4. Common funds owned by the body corporate (e.g. the sinking fund and any special levies) against fraud & embezzlement.
5. Loss of rent / alternative accommodation costs for lot owners following damage to the buildings or common property.

What is each lot owner responsible for?

Each lot owner is responsible for his/her own possessions and improvements that aren't part of the original deed (or subsequent improvements), as well as her own possessions and belongings. And most importantly, the legal liability for injury or damage to guests and tenants. The strata body insurance will only defend the strata body against its legal liability - for example the body's failure to maintain the driveway in good order - it won't defend an individual lot owner against the lot owner's personal negligence.

The classic example for personal assets is the kitchen - if you gut the original kitchen and replace the splashbacks, cupboards, tiles, and sink, those improvements technically belong to you and not to the strata. If there is damage to that kitchen, unless the strata bylaws say otherwise, the insurer may only cover the cost of what the original kitchen would have been. You'd ordinarily be expected to insure the kitchen improvements themselves as part of your Home Contents insurance.

But not many people remember this! That's why I say that the first hurdle with explaining stratas and body corporate insurance is to achieve understanding that the insured entity is the strata body itself, not you personally.

Is there another way?

This "the kitchen is part of my home building" but "the kitchen upgrade belongs to me, not to my strata" conundrum can be so troublesome that many strata regulations and strata bylaws specify that such upgrades are gifted to the strata body.

But if you're not sure, I'd recommend minuting at your next strata meeting that the kitchen upgrade / solar hot water system upgrade / pergola upgrade / whatever upgrade has been gifted to the strata, and that the body corporate shall insure the upgrade as well.

Another option

And another option for West Australian small stratas with minimal common property is that the body corporate can decide to have each lot owner insure his or her lot separately, and not as part of a group. Many small strata bodies choose this option to reduce friction between lot owners.

With decades of experience helping strata bodies understand their insurances and maximise their entitlements at claim time, I can help demystify strata insurance and make sure that you're not paying too much.