Time to renovate?

Couple RenovatingLandlords looking to renovate their property need to consider the insurance implications.

 
The Block, House Rules, Renovation Rescue, Game of Homes, Rehab Addict, Raise the Roof, Flip This House, Love It or List It… Australia’s love affair with sprucing up property shows no sign of abating if the TV guides and homes magazines are any indication. And it isn’t just owner-occupiers who get bitten by the renovation bug; there are plenty of landlords who will be having plans drawn up and booking in builders this spring.
 
The property industry is predicting a surge in home renovations in the years ahead – taking the total value of the renovation market to $34.71 billion by 2020, according to the HIA. Currently renovations account for about one-third of all residential building work but by the end of the decade that share will climb to about 42 per cent.
 
Factors influencing the expected upswing in renovations include: a rising number of properties reaching the key renovation age (20-plus years – there was a plethora of detached houses built between 1985 and 1995); low interest rates and strong dwelling price growth opening up opportunities to use the equity in the property to renovate; a slowing in new builds and the increasing availability and competitive pricing of trades; tax deductibility of capital works for investors (especially in light of the new restriction on depreciating plant and equipment); rising expectations of tenants in terms of what a home offers (particularly in markets where competition for leases is fierce); and the surging popularity of using granny flats to tap into the demand for affordable and/or market-appropriate rentals (think students, singles, older persons, low-income, FIFO, short-term).
   
But before a landlord starts overhauling their investment property they need to think about insurance cover.
 
There is often a lot of confusion amongst property owners and builders about who is responsible for insurance while a property is being renovated. As a basic guide, the MBA advises that there are three main types of insurance that need to be considered:
  1. Construction Works
    Cover: Comprehensive cover for damage to the works in progress. This only covers new works. Other property on the site is not covered unless the policy is specifically extended to do so. 
    Responsibility: Builder
  2. Public Liability
    Cover: Legal liability for third party personal injury or property damage. Frequently both owners and builders mistakenly assume that the builder’s public liability will be sufficient to protect the owner’s property, but that is not the case (not all damage will be determined to be the liability of the builder).
    Responsibility: Builder
  3. Owner’s property
    Cover: Insurance for existing structures (house, outbuildings etc.) and home contents. 
    Responsibility: Owner (unless it is stipulated in the building contract that the builder must arrange this cover).
Importantly, landlords need to check their insurance policy to see where they stand cover-wise while their property is being renovated. The builders’ insurances will not cover the owners’ property, except under specific circumstances (such as loss due to proven negligence). Too late, many owners realise that there is no cover on the property.
 
Depending on the insurance policy the owner has, they may be covered for renovation work; although, generally once the value of the works reaches a certain value, the cover is void and many policies have a blanket exclusion. Alternatively the owner can check with their insurer to see if they can get cover whilst the renovations are undertaken or work with the builders’ insurer to arrange an extension of the Construction Works policy.
 
RentCover policyholders should contact us to discuss their options during renovation works. Even if the owner has arranged cover for the property through the builder, it is a RentCover condition that the policyholder or their agent notifies us if they are having renovations undertaken and/or if the premises will be vacant, as both scenarios significantly increase the risk of loss, damage or injury. We also recommend that policyholders speak to us about the sum insured for their property once capital improvements have been made to make sure they don’t run the risk of underinsurance. 
 
Elkington Bishop Molineaux Insurance Brokers Pty Ltd (EBM) issue the product on behalf of QBE Insurance (Australia) Limited.  This brochure contains general advice only so please refer to the Product Disclosure Statement when deciding whether the insurance suits your needs – a copy can be found on our website (www.rentcover.com.au) or by contacting 1800 661 662.