What would happen if you discovered that your tenants have been running an illegal P-lab in your rental flat? As the unit owner you could be left with a great deal of damage and a flat that needs decontamination before it can be re-tenanted, putting you at risk financially. Although you probably know your apartment complex is covered by Body Corporate insurance, you may not know what implications that has until it is time to claim. Don’t leave it until it’s too late to obtain expert advice from a broker as it is important to have a policy that includes the right kind of cover and discloses all necessary information.
What is Body Corporate Insurance?
If you own a property in a unit title arrangement, you and your co-owners are covered by the same insurance policy. This doesn’t only affect large apartment complexes; small blocks of flats and small to medium commercial developments are also often unit title developments. Body Corporates are created by statute and as an owner of a unit title property you are bound by the Unit Titles Act 2010 as well as any rules that the Body Corporate has passed which are particular to that development.
With a unit title arrangement, the Body Corporate takes out the insurance for all of the units. If any unit has been damaged, whether by fire, earthquake, or the operation of an illegal P-lab, the Body Corporate is responsible for lodging the claim with the insurer and making any decisions about the repair or rebuild.
Common pitfalls with claims
With so many involved parties, claims can be complicated and a number of pitfalls commonly arise:
- Following the earthquakes in Christchurch many Body Corporates found themselves underinsured, leaving them scrambling to figure out how to apportion the insurance cover that was available, and how to apportion contribution towards any shortfall among the unit owners. Under the Unit Titles Act, owners can be forced to pay any shortfall.
- Difficulty in contacting all owners to arrange access for quoting or arranging repairs can delay the claim process unless an emergency management plan and contact person have been put in place. It can be worth having a pre-arrangement with your insurer that specifies the suppliers to be used for services such as carpet cleaning etc.
- Curtains, carpets and blinds need to be covered by a contents policy taken out by the owner. This is often overlooked by owners of tenanted units. It is important to discuss this aspect with your broker or insurer at the outset and to notify all unit owners of their responsibility to arrange cover for their own contents.
- No Loss of Rents or Alternative Accommodation cover – this needs to be covered separately by the owner as the Body Corporate only insures the building.
- Who insures the carpets and fire extinguishers in the hallways? Your policy needs to include cover for common contents that are the responsibility of the Body Corporate.
- Insurers are now experiencing an increase in liability claims made against the Body Corporate for damage to vehicles from car stacking units as these are becoming more common in NZ apartment buildings. A plan needs to be in place to identify the maximum capacity of the machinery and disclose this to prospective purchasers.
- Lifts, sealed air-conditioning units and car stackers are often not covered for mechanical breakdown and often require separate Machinery Breakdown cover.
And if you do discover your tenants have been running a P-lab in your rental unit? Some insurers don’t cover damage from this kind of activity so it is important to ensure you are covered. This is unfortunately becoming more prevalent in NZ and extension to the cover can be requested if it is not included. Aside from the damage to the unit from contamination, there are often claims for Alternative Accommodation or Loss of Rents to be dealt with while the building is decontaminated and repaired.
If you are faced with major damage to your home or investment as part of a Body Corporate you will be much happier knowing that you have sought specialist advice and that all areas have been considered. If you have any concerns about your current cover or wish to obtain quotes for any alternative cover, please contact one of our brokers as we are more than happy to advise.