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Strata vs landlord insurance: Why property investors need both

August 10, 2020

Emma owns an apartment in a development in Woden, which she rents to Gail. Gail has been thoroughly vetted by Independent and has been a model tenant. Emma is happy…until one weekend when Gail is out of town visiting her parents, a pipe under the sink splits. By the time Gail arrives back home, the carpets are soaked through and permanently water damaged. Even worse, the floorboards underneath have swollen and warped under the water load.

To fix the problem, the carpets have to be replaced completely. The flooring underneath takes 10 days to dry out completely before the new carpets can be laid. Emma is obliged to find alternative accommodation for Gail while the apartment is unliveable.

Luckily, Emma has insurance. Her landlord insurance policy covers the damage to the carpets and pays for the replacement. Since the floors underneath are part of the strata building, they are excluded by the landlord policy. Luckily, her strata insurance kicks in and covers the difference. Emma saves herself from a hefty bill – and Gail is back in residence within a couple of weeks.

Unless you’re Jeff Bezos, your investment property probably represents a serious chunk of your wealth. Don’t risk being left out of pocket if something happens to it.

If you own property in a strata development, you already have strata insurance. It’s included in your strata fees. But don’t make the mistake of thinking you’re covered against any eventuality. Strata insurance extends cover for what is defined as ‘Building’ in your policy disclosure statement. This is typically your walls, floors and fixtures that are fit to the building in a permanent-like manner.

For damage to the interior of your unit, including malicious damage by your tenant, you need landlord insurance. It’ll also cover you for unpaid rent in most circumstances.

To understand why you need both, let’s look at what they do.

What is strata insurance?

Residential strata insurance covers the common property of a strata title property.

This includes:

  • Carports
  • Shared indoor areas including lobbies and hallways
  • Shared outdoor areas like driveways and gardens
  • Shared mechanics and utilities, including lifts, piping and HVAC systems
  • The fixed parts of your unit, including floors and windows. It usually covers the original kitchen and bathroom that were added when first built, but may not cover upgrades.

Strata insurance is so important that it is compulsory under the Units Title Management Act 2011. Your strata fees include your share of the cost of the insurance, which is taken out in the name of the owners’ corporation.

What does strata insurance cover?

Strata insurance is a ‘broad spectrum’ policy, meaning that it covers a broad range of things. Check your policy for details, as each policy has different things that it includes and excludes. Generally, though, you can expect your strata insurance to cover:

  • Impact damage: for example, if a vehicle loses control and drives into a fence or wall
  • Resultant water damage, which may come from burst pipes or leaking roofs
  • Accidental damage,
  • Malicious damage
  • Fire damage from an electrical fault,
  • Storm damage, including fallen trees that damage the property, broken windows or hail damage

Strata insurance also includes public liability insurance for the common areas. This is critical to have, as it insures you against the risk that a visitor or tradesperson injures themselves on your property. These claims can run to hundreds of thousands of dollars, or even into the millions.

What doesn’t strata insurance cover?

It’s vital that you check your policy for exclusions. Many exclude damage that stems from extreme weather events, like floods, cyclones or bush fires. If you’re in an area where these pose a substantial risk, consider whether it’s worth trying to find a policy that will cover them. Be warned – if you can, it will come at a cost!

Strata insurance also won’t cover you for known building defects, or issues that arise from neglect or deterioration over time. That means that if you know your hot water system is due for replacement, and you ignore it, you probably won’t be able to claim for the damage when it fails.

Strata managers and property managers are important allies in helping you keep on top of maintenance like this. They will be proactive in inspecting the property and advising owners on what needs to be budgeted into the future — meaning that if you do have an insurance claim, you’ll be able to show it wasn’t caused by negligence.

“We often manage multiple units in one complex,” says Grace Hooper, General Manager for Independent Property Management. “If we notice that one hot water service is about to go, we know that the others will probably need replacing soon as well since they were all installed at the same time. We can let the owners know before it becomes a reactive problem”.

What is landlord insurance?

So what about its strata insurance’s alter ego, landlord insurance? “It’s common for people to buy strata property as investments,” says Grace. “The two products, strata insurance and landlord insurance, work in tandem so that landlords are properly covered.”

Really, landlord insurance is about providing you with stability, giving you assurance that the income stream you gain from your investment property is protected from circumstances outside of your control.

Events that are covered might include:

  • Theft of your possessions by tenants, their guests or other burglars. This is particularly important for landlords who rent their premises furnished, but also includes fixtures and appliances that come standard in rental properties, like a split system air conditioner or oven.
  • Malicious damage or vandalism by tenants or their guests
  • Accidental damage to the removable contents of your unit, including carpets and blinds
  • Loss of rental income if the tenant breaks their lease early or defaults on their payments
  • Legal expenses you may incur if you have to evict a tenant

Are any of these likely to happen? With a good property manager, it’s not very likely.

“We vet tenants very carefully,” Grace says. “If a tenant is late on rent, we have a robust process in place to remind them and follow up if it remains unpaid. Taken altogether, our processes means it’s rare to have tenants deliberately damage the property or intentionally stop paying rent. You can’t guarantee everything, though, and sometimes people do make bad decisions, or their circumstances change dramatically. That’s why we always strongly recommend that our landlords take out insurance.”

Landlord insurance may also cover damage caused to the property by storms, floods or fire if this isn’t covered by your strata insurance. If the property is unlivable while you do repairs, your insurance policy might cover the loss of rent during this period.

Get advice from your property and strata managers

FAQ insurance questions

  1. I’ve tried to claim my carpet on my content insurance... but my content insurer says to go to my strata insurance. What’s going on? Is carpet considered content or not?
  2. Do I need public liability within my unit, or does strata insurance cover that?
  3. My tenant had to move out for 2 weeks while the bathroom was being re-waterproofed. Strata insurance said the re-waterproofing wasn’t insurable because it was general deterioration but who’s going to pay to relocate the tenant?
  4. Strata tells me it’s my responsibility to maintain my roof and everything within my fence-line. Does this mean it’s not covered under strata insurance?
  5. My tenant accidentally hit the garage door. Strata insurance covered the replacement however, they’ve now gone after the tenant for recovery of the costs. Why is this?

Every policy is different. Our team can help you with yours.

If you have the wrong policy, you might not discover the problem until you need to make a claim and your insurance company refuses to pay out. That can prove very costly.

At Independent, we suggest discussing your landlord and strata insurance options with the relevant manager, as they are able to provide advice about your specific needs.

“Some policies won’t cover you for lost rent if your tenant is on a periodic or month-to-month lease,” Grace offers as an example. “Others may not include damage by pets. So its important to understand what you’re signing up for.”

Find out more about our strata services.

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