If your investment property is in a strata complex, it’s important to understand who is responsible for insuring what.
More than two million Australians live in apartments, units, flats, townhouses and villas and almost half of all apartments are rented, according to UNSW’s Australian National Strata Data 2018. This means there are a lot of landlords who own investment properties within strata complexes.
The responsibilities around insurance are not as straightforward when it comes to strata properties as they are for detached houses. When an investor buys a house, they own the actual structure (e.g. the house itself and any outbuildings) and need insurance which covers the building, any contents they own within the premises and tenant-related risks.
However, when an investor buys a unit in a strata complex, the building structure is jointly owned and responsibility for insuring it falls to the owners’ corporation or body corporate. This strata insurance covers the building, any shared or ‘common’ areas, and the contents in them – basically anything owned collectively.
In addition to the building itself, common property includes the fixtures which form part of the building structure (e.g. fixed plant, machinery and underground services) and owners’ fixtures, fittings and improvements which form part of the building (e.g. balconies, windows, shared water pipes, sewage pipes and electrical conduits). Any appliances, equipment, furniture, fittings and works of art in common areas for which the body corporate is responsible are considered common contents.
Strata insurance (which is compulsory) typically covers common area contents, the building and shared property, from loss or damage. Generally, events like theft of common area contents, repairs to damaged property managed by the owners' corporation, and the cost of recovery, if disaster strikes, are covered by strata insurance.
The key here is ‘common property’. Strata insurance only covers the actual building structure and the shared or common areas within it (such as pools, gyms or recreational areas), shared area contents and property (such as carpets in the hallways or shared appliances in common areas like washing machines in the communal laundry) and permanent fixtures within each unit (such as doors, built-in stoves and tiling). It does not cover anything else in the individual unit like non-fitted appliances, furniture, electronics and other personally-owned items. One way to visualise what isn’t covered by strata insurance is to think about the unit being turned upside down and shaken. Whatever falls out (e.g. is not permanently affixed/built-in including carpets, blinds and light fittings), isn’t covered. The responsibility for insuring these items falls to the landlord if the contents are owned/supplied by them or to the tenant for their personal possessions.
Crucially, strata insurance only covers legal liability on common property, so it only protects the owners’ corporation against third party claims for property damage and personal injury in common areas. Both landlord and tenant are liable for personal injury or property damage within the unit. The landlord is responsible for ensuring that the home is properly maintained and safe, and would be liable if the tenant or their guest was injured on the premises as a result of negligence, for example failing to repair damaged carpets which results in tenant tripping and sustaining an injury. A tenant can also face liability for damage or injury if they fail to maintain a safe environment for anyone that comes onto the property, for example failing to mop up a spill which results in a visitor slipping over and damaging their expensive watch. That means both landlord and tenant need their own insurance to provide financial protection in the event of a compensation claim for which they are responsible (legally liable).
It is also important for landlords to understand that they will only have cover for tenant-related issues like loss of rent or damage when they have their own landlord insurance – strata insurance does not cover these eventualities.
Here’s a summary of who is generally responsible for what when it comes to a strata unit:
|Cover for...||Body Corporate (through strata insurance)||Landlord/Owner (through landlord insurance)||
Tenant (through renters’ insurance)
|Building structure/ complex (e.g. exterior walls, wiring, water and sewerage pipes, balconies, ceilings, floors, windows, lifts, stairways)|
|Shared/common areas (e.g. pools, tennis courts, gyms, communal laundries, lobby/foyer, communal BBQs, common entries and exits, car parks, gardens)|
|Shared/common property (e.g. lobby carpet, foyer artwork, gym equipment, loungers by the pool)|
|Permanent fixtures in each unit (e.g. doors, tiling, built-in ovens, stovetops, ducted air-conditioning, kitchen cupboards, baths, showers) Note: Check the strata policy as changes to the original building e.g. a replacement kitchen or bathroom, may not be covered.|
|Furniture, fittings (e.g. carpets, lino, blinds, curtains, light fittings, paint, wallpaper) and fixtures (e.g. appliances not wired in, washing machines, stoves, dishwashers or in-unit only air-conditioners, heaters etc.) within unit owned by landlord|
|Furniture, soft furnishings, appliances and all personal possessions (e.g. clothing, jewellery, electronics, bikes, pot plants) owned by the tenant|
|Tenant-related issues including damage, loss of rent, or legal costs associated with taking action against the tenant|
|Legal liability in common area/on common property|
|Legal liability within the unit|
With the above, there are exceptions, such as when a loss is the result of another party’s negligence, but this is a general overview. You should always check the strata management contract to see what elements of the complex the body corporate is responsible for, and the strata insurance to understand what is and isn’t included in the policy, especially when it comes to fittings and fixtures to ensure you have adequate insurance cover.
By understanding who is responsible for insuring what in a strata complex, property investors can ensure they protect their rental with the right landlord insurance.
At EBM RentCover we empower landlords and property professionals with the tools and knowledge needed to make informed decisions about landlord insurance.
*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are there, contact 1800 961 017 if you have any questions.
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