As your building enters its senior years, insurers will focus on risks associated with vital components of the building infrastructure, like electrical and plumbing services where failure could be catastrophic.
Newer properties developed under more modern building codes and structural engineering may be viewed as being considerably safer from such failure concerns. However, insurers increasingly require evidence of a high level of upkeep, so they stay that way.
Ongoing maintenance programs and regular inspections can help keep buildings safe and operable. But if simple repairs are ignored, they can quickly become more serious issues, potentially causing significant damage that can displace residents and/or put people at risk.
Strata schemes must allocate money in their capital works fund (also called a sinking or reserve fund) for essential upgrades. They should also be aware of common structural issues, such as water leaks or pest damage, and how to prevent them to avoid costly repairs.
Beyond the structural integrity
Maintenance of an ageing building involves more than just looking after the structural walls and foundations. It’s also important to maintain and update all the systems within a building that help keep it functioning.
Under all state legislation, a strata scheme must maintain the property in good condition and must ensure the building is always structurally sound in terms of its foundations, roofing, supporting framework and load-bearing walls.
In some states, it’s a legislative requirement to have a maintenance plan. But even if it’s not a requirement in your state, it’s proactive to have a plan which details the anticipated repair and replacement of major capital items.
All strata policies also require the property to be maintained and losses to be mitigated.
These are some common problem areas.
- Plumbing – worn-out plumbing can result in burst pipes and water damage.
- Wiring – old wiring may lead to fires and, if combined with water, may cause electrocution.
- Concrete cancer – can put the building’s structural integrity at risk.
- Roofing and guttering – neglected repairs typically lead to water damage and liability hazards, such as falling infrastructure.
- Liability hazards – anything falling off the building or breaking may cause injury or property damage.
- Uneven paving – risks becoming a trip hazard.
- Corrosion and wood rot – these are policy exclusions.
Impacts on your strata insurance
Where an insurer perceives a building to have an increased risk because vital upgrades haven’t been carried out or aren’t in the short-term financial plan, it may simply decline to offer terms or offer a higher insurance premium and restrictions on cover to compensate for the risk.
What’s more, when it comes to claims, known issues with a building may result in a claim being declined entirely if the insurer establishes that the strata scheme knew about the issue and failed to take action to prevent or mitigate the scale of the loss.
And then there are wear and tear Exclusions, which state that the insurance policy will not cover losses due to normal deterioration of the insured property. It applies to all strata policies, although the definition can differ by insurer, so you should always read the Product Disclosure Statement to understand how it applies to your scheme.
Over the years, insurers have declined many claims of significant value due to the wear and tear exclusion.
Wear and tear for insurance purposes is damage to property that’s occurred over time and isn’t from a one-off event. For example, if a leak is known about and allowed to continue without being repaired and damage worsens, a claim for the water damage may be reduced or declined because the insured didn’t act to fix the leak when it was reported.
This Exclusion also applies to leaks within units where an owner might be responsible for the leak repair. The strata scheme and its members are collectively ”the insured” so owners also have a responsibility to maintain their units in good repair.
Being proactive
Don’t wait for disaster to strike. Take preventive measures to ensure your building’s longevity and to ensure your scheme can get access to the best possible insurance terms.
- Budget for repairs and maintenance – don’t get caught short. Set aside money for routine maintenance and potential unexpected expenses.
- Schedule building inspections – inspections should be performed by qualified inspectors with location-specific expertise. They should document issues so they can be compared year-to-year. At a minimum, inspections should occur annually, after any significant weather event, or before/after any major addition or renovation.
- Know local building codes – they help maintain safe and structurally sound buildings, so it’s important to meet all the requirements.
- Act on identified issues – deal with problems when they arise to prevent a minor issue from becoming more serious…and costly. The safety of those who live or work in a building depends on structural problems being addressed and resolved.
Eventually, all buildings will need repairs and updates. By being proactive, strata schemes can maintain the structural integrity of their building and the safety of their residents and achieve better insurance outcomes.
