Contract with the Local Council to empty bins on common property
Recently it was decided at an AGM that the Strata Company would seek to enter into an agreement with the local City Council, to enter common property for the purpose of emptying the bins.
The benefit of this will see the Strata Company not have to employ a casual person to roll all the bins out weekly to the verge. The local City Council will do this provided they enter into a contract with the Strata Company, as they don’t want to be liable for any potential damage they may cause. Will your insurance cover this?
All agreements should be legally drawn up – so legal advice is paramount.
Before you enter into the contract, you must advise your insurer, as some indemnity clauses can prejudice your insurance policy and trigger exclusions. For example, your insurer may not indemnify you for all actions and claims where such arises from negligence by the Third Party performing the work and whom you have signed a contract with that contains a full indemnity, with no rights to recover from the Third Party part or all of the claim.
Insurers, if the contract/agreement is proportionate and acceptable, they may endorse the policy accordingly or confirm it is acceptable as per the policy.
Insurance for Common Property & Your Lot Explained
Strata Title Common Property Ownership
As an Owner you have an undivided share of common property. This means you, along with all other Owners of your scheme are responsible for any liabilities that arise from common property ownership. A Strata Company is an unlimited liability company.
Strata Titles Act 1985 WA
The Western Australia Strata Titles Act 1985 (STA) outlines the insurance responsibilities of a Strata Company in Section 53 & 54. The Strata Company shall insure the “building” for the Replacement value, including all fees, charges removal of debris costs and hold a minimum of $5m legal liability insurance. Workers Compensation insurance is required where a Strata Company employs workers, either directly or indirectly as contractors. Refer to your broker to determine your requirements here.
Other insurance is discretionary, however risks are changing and increasing and many discretionary covers are now standard sections in a Strata Insurance policy.
A Strata Company is responsible to ensure the insurance is arranged as mandated by the STA. Building definition Section 53 The STA describes the definition of “building”; includes any building on the parcel for a scheme, whether shown on the strata/survey-strata plan or not and also includes —
(a) proprietors’ improvements and proprietors’ fixtures forming part of the building including paint and wallpaper but excluding carpet and temporary wall, floor and ceiling coverings.
Building as defined in the STA includes Proprietors fixtures and fittings or structures that are fixed to, or forming part of the building, which include inside or outside a Lot.
Proprietors (Owners) Fixtures and Fittings
As an Owner it may be difficult to define personal contents and what is a fixture. A rule of thumb is if it is attached or fixed to the building, it’s a fixture of the building. If you can pick it up and take it with you, it’s personal contents.
A strata manager manages common property. Their duties do not extend inside a lot for maintenance, other than to enforce the by-Laws and arrange repairs on a Lot boundary that impacts common property or other units, such as a leaking shower drain which causes water ingress to a unit below.
In summary Strata Insurance extends limited cover inside your Lot only for what forms part of the building structure as defined by the STA for resultant damage from accidental damage or perils covered by the policy, not your removable contents, as referenced above and illustrated in the table in this pdf document
Commercial Fixtures
When it comes to commercial strata temporary fixtures (i.e. shop fit outs) that are installed inside a Lot and attached to the building, if they are removable at the end of the lease agreement, then these fixtures are not covered by strata insurance, as not defined as part of the building.
Carpets
The STA specifically excludes carpets or other temporary floor, wall or ceiling covering, found inside a Lot. Therefore typically Strata Insurance policies will not cover these items either. The Owner needs to ensure their contents insurance covers these items. *Note that carpets or other fixtures found in Common Property are covered.
What does an Owner need to insure?
Things not covered by strata insurance and including: Removable contents and chattels for e.g. furniture, personal belongings temporary fixtures, like floating floors and carpets etc. as contents insurance.
Your Legal Liability Exposure
As an Owner you also have Legal liability exposure arising out of the use of your Lot. Whether you live in your Lot or you lease your property to a tenant, it is important to ensure that you have insurance protection. Generally when you buy residential contents insurance or Landlords insurance, both policies will provide cover for legal liability insurance.
Does your tenant need insurance?
A tenant living in strata should have contents insurance for themselves, similarly to cover their own contents, but also their legal liability. A tenant can become liable to the Strata Company for negligent claims that encroach beyond the confines of the Lot and extend into common property.
Other Insurance Responsibilities Refer to other Strata Insurance knowledge flyers. General Disclosure This article has been prepared for informational purposes only, and is not legal advice and should not be relied on as legal or insurance advice. You should consult with a qualified insurance or legal advisor.
Responsibilities to Maintain, Disclose and Keep Insured
A strata company is required to adhere to many different Acts of parliament, both state and federal. In this article we discuss when a duty to disclose is required when obtaining and renewing your insurance and examine the legal requirements around maintenance obligations
At this point it is pertinent to direct you to the Western Australian Strata Titles Act 1985 (STA), in particular the sections noted below.
Statutory Duty to Insure
STA s35j,
A strata company shall-
Effect insurance in accordance with Division 4
STA s53D & s54
A strata company shall —
(a) Insure and keep insured the building to the replacement value
(b) effect and maintain insurance in respect of damage to property, death, or bodily injury for which the strata company could become liable, not less than $5 000 000 or such other amount as may be prescribed in place of that amount.
Statutory Duty to Maintain
STA s35
A strata company shall —
(b) Control and manage the common property for the benefit of all the proprietors; and
(c) Keep in good and serviceable repair, properly maintain and, where necessary, renew and replace —
(i)The common property, including the fittings, fixtures and lifts used in connection with the common property; and
(ii) Any personal property vested in the strata company, and to do so whether damage or deterioration arises from fair wear and tear, inherent defect or any other cause
Statutory Duty of Disclosure
Insurance Contracts Act 1984 s21
Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into etc. and the insured has on-going duty to disclose, as at renewal as this is considered a new contract.
Maintenance Is Broad
The simple fact is that maintenance is required from time to time on any property. Maintenance arises from fair wear and tear, accidental damage or inherent defect.
It is the expectation of the insurer that a strata company will look after the building, as outlined by the STA .
When a maintenance issue is identified that has the potential to increase the risk of further damage, or expose the strata company to legal liability, these matters should be notified to the insurer, along with a scope of works and action to repair.
To minimise liability the strata company should demonstrate that they are proactive in addressing the issue and keep all interested parties notified of the situation. This action will be seen as favourable to the insurer.
STA s35k
A strata company shall-
Ensure that statutory obligations for complying with notices and orders of any competent public authority or local government requiring repairs to or work to be done in respect of the parcel or building, or anything in, on or over it.
This section is very relevant to identified building defects, which we will discuss in the next section.
Definition of Building Defect
A defect within new buildings is usually areas of non-compliance with the Building Code of Australia, various Australian Standards and unacceptable tolerances and standards.
A defect in an older building may also be caused by lack of adequate maintenance. A building, product or application can become defective through age and lack of maintenance that breaks down and the failure is not repaired.
General routine maintenance items, such as fixing tiles, repainting, normal wear and tear and ageing are not considered as defects.
Building Inspection Reports
A strata company can satisfy S35 by undertaking building maintenance inspection reports.
A building inspection report will outline maintenance issues to be addressed immediately and issues that may arise in the future, but do not need immediate attention.
The results of this report should form the basis of a building maintenance plan. In the current STA reforms it is proposed that building maintenance plans will be a statutory requirement, which will better support the requirement to maintain.
In the process of obtaining inspection reports and developing maintenance plans, it is important to note that a breach may occur if the strata company ought to have known about the problem (i.e. identified from the inspection report) but chose to ignore it or decided to address the problem at a later stage. Once an issue is known and the urgency is determined, it needs to be acted on.
Take the following as an example - a water pipe bursts in a building. This may be considered maintenance fair wear and tear. However, if a pipe had burst previously and an expert plumbing report revealed an on-going issue of corrosion and no plan had been put in place to rectify the issue – this would be a violation of policy.
To ensure insurance coverage remains in place any issue that arises from a building inspection that may increase the risk to the insurer should be disclosed. An action plan should also be shared with the insurer as well as any interim measures for unsafe situations that need to be adopted, such as dangerous electrical wiring to be made safe.
Building Cladding - A Timely Example
Recent cladding audits are endeavouring to identify buildings that have used a particular cladding product ACP - Aluminium Composite Panels, on the outside of buildings. It has been established that this cladding has contributed to a number of fires on apartment buildings, both in Australia and overseas, leading to increased person and property loss.
Whilst the product is not defective the application of its use as a building cladding product is a fire hazard and it is part of the responsibility of a strata company to undertake such audits where appropriate.
In Summary
Legally speaking, a strata company has the following key responsibilities;
A duty to insure
A duty to maintain
A duty to disclose
A proactive strata company will adopt a building maintenance plan to ensure the building is looked after. Any maintenance of a building will involve either repairing defective items or wear and tear issues. It will be supported by accurate budgets and scope of works.
To ensure coverage remains in place at all times the strata company will ensure that the insurer is notified of the problem and solution.
Follow these simple steps of transparent communication with all interested parties and your business will avoid any uncomfortable conversations with your insurance provider.
References
http://www.buildingdefects.com.au/
https://slp.wa.gov.au/legislation/statutes.nsf/main_mrtitle_938_homepage.html