Landlord insurance in strata and community title: what to check for your clients

For property managers and agents letting strata and community titled property in South Australia.

"The strata insurance covers the building" is right often enough that it gets said about every unit and every lot. For a unit in a strata scheme it is true. For many community titled houses it is not, and the owner who believes it has a house that nobody has insured.

This guide sets out what the corporation must insure, what it leaves to the owner, and what to check before your client signs a lease.

Who insures the building depends on the title

• A unit in a strata scheme (Strata Titles Act 1988). The corporation must insure all buildings and building improvements on the site, to replacement value. The owner insures their own contents, and anything the corporation's policy excludes.

• A lot in a community scheme that is also a strata scheme (one lot above another). The corporation must insure the building or buildings divided by the strata plan, and the buildings on the common property. The owner insures as above.

• A lot in a community scheme that is not a strata scheme (a house on its own lot). The corporation must insure only the buildings and improvements on the common property. The owner must insure the house itself, and everything in it.

For a strata corporation, "replacement value" is the whole cost of rebuilding: demolition, surveying, architectural and engineering work, and the associated costs. It is not the market value of the units, and it excludes the land. A community corporation's cover must be for the full cost of replacing with new materials, including demolition, site clearance and architect's fees.

The third case is the one that catches people. On a community plan of separate houses, the corporation's policy covers the shared driveway, the letterbox bank and the common garden. It does not cover your client's house. That building needs its own policy, arranged by the owner.

If the house shelters or supports a neighbour, for example a shared wall under an easement, the owner is required to insure it for the full cost of replacing it with new materials, and to give the corporation a copy of the current certificate of insurance.

What the corporation's policy leaves to the owner

Even where the corporation insures the whole building, its policy is written for the corporation. It does not protect your client's income from the property. Things a landlord commonly needs to cover separately include:

• Their own contents in the premises: furnishings, appliances and window coverings that are not part of the building

• Loss of rent, whether from damage that makes the premises unlettable or from a tenant who leaves or defaults

• Legal costs in recovering rent or possession

• Their own liability for injury inside the premises. The corporation's public liability covers the common property.

Policies differ on every one of these points, and on exclusions such as flood. The policy wording decides, not this list.

The tenant's belongings are never covered by either policy. Tell the tenant that at the start of the tenancy.

Improvements your client makes

If your client renovates, the new kitchen or bathroom becomes part of a building the corporation insures, but the corporation's sum insured only covers what its valuation took account of. Your client should tell the corporation about substantial work, so the corporation can tell its insurer.

Before the lease is signed

1. Confirm the title. Strata plan, or community plan? If community, is the scheme also a strata scheme? The plan answers this; the listing often does not.

2. Ask to see the corporation's current policies. Your client, as owner, is entitled to inspect them, and the corporation must produce them within 5 business days. For a strata corporation the request can go to the secretary.

3. Look at the sums insured. Ask when the building was last valued by a qualified valuer. We recommend a professional replacement valuation at least every five years; an insurer's annual index increase is not a substitute.

4. Check the other compulsory covers. Public liability must be at least $10 million. Fidelity guarantee cover must be the higher of $50,000 or the corporation's highest total bank balance in the previous three years, not a flat $50,000.

5. For a community lot that is not a strata scheme, confirm your client's own building policy exists and is for full replacement.

6. Record insurance in the tenancy agreement. A written residential tenancy agreement must set out responsibility for insurance of the premises and of the contents.

When the corporation is under-insured

If the sum insured looks low, or the policies cannot be produced, your client's exposure is real: an under-insured rebuild is paid for by the owners. Raise it with the corporation in writing and keep a copy.