strata-insurance

Insurance Obligations for Strata Schemes

Are you fulfilling your strata scheme’s insurance obligations? 

The fallout from the global pandemic has reduced production and crippled supply chains for many industries. In the property sector, building material costs, labour, and shipping have significantly increased with no end in sight.  Around 60 per cent of construction materials originate overseas, particularly from China, which is still facing endless lockdowns.

Australian Bureau of Statistics (ABS) construction data paints a bleak picture. Driven by supply constraints for timber and metals, high freight costs and skilled trade shortages, building construction costs spiked by 10.1 per cent over the past twelve months. In NSW, multi-level construction costs have risen by 9.5 per cent over the past twelve months. Increases in steel beams, skilled labour, timber, and reinforced concrete columns – all key multi-level elements – have been as much as 12.4%.

What does this mean for your strata scheme?

You might not be meeting your legal obligations as an owners corporation to ensure your strata scheme is insured for the full replacement cost because the cost to rebuild and repair a strata scheme is significantly higher than in pre-covid times.

What is an owners corporation’s legal duty?

Under section 60 of the Strata Schemes Management Act 2015 (SSMA), an owners corporation has an obligation to insure its scheme under a damage policy. The damage policy must cover the costs to rebuild or repair the strata scheme, that has been destroyed or partially destroyed or damaged  ‘so that the condition of every part of the rebuilt or replacement building is not worse or less extensive than that part when new’,

The damage policy valuation takes into consideration:

  • The demolition, disposal & storage costs
  • Expenses to remove debris
  • The replacement cost of the buildings & common areas
  • Professional fees (eg. architect, surveyors, engineers)
  • Government fees & taxes (eg. contributions or taxes).

While there is no specific requirement to keep insurance re-build valuations current, the SSMA does impose a requirement for the building to be insured for the ‘full rebuild value’. With the recent rise in construction costs, you may not be fulfilling your obligations.

Fines and penalties apply for non-compliance with the Act.

If your building valuation has not been updated recently, speak with your S+ strata manager. 

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