Question: We agreed to a cash settlement to fix water damage to our roof from a storm. The owners corporation will only release funds when the work is complete. Where do we stand?
Our unit had storm damage. We agreed to a cash payout to replace roof tiles and repair and paint the bedroom ceilings.
Insurance arranged the claim, and we signed a deed of release for around $4000 to complete the repairs.
The insurer paid the money into the owners corporation trust fund. The owners corporation will only release the funds to us when the work is complete. The insurer agrees that the cash settlement should be released so repairs can be completed. Isn’t that the purpose of a cash settlement?
Where do we stand? If we experience another storm, the roof can still leak.
Answer: It is common practice among owners corporations to reimburse the owner directly upon receipt of a cash settlement, enabling them to undertake repairs without delay.
For the application of insurance funds in strata schemes, it’s crucial to reference Section 163 of the Strata Schemes Management Act 2015. This section clearly outlines the responsibilities of an owners corporation in managing insurance money from claim payouts.
A key point of discussion is the Act’s requirement for the immediate application of these funds for repairs. This raises an important question: Does requiring an owner to pay for repairs before releasing the funds comply with the legislation? “Immediately applying” suggests a prompt action, which could be interpreted as conflicting with asking owners to front the cost.
Moreover, it’s essential to recognise that the owner is an insured party under the policy. When the settlement pertains to their lot, the funds are inherently intended for the lot owner to repair their property. For this reason, it is common practice among owners corporations to reimburse the owner directly upon receipt of a cash settlement, enabling them to undertake repairs without delay. This approach best aligns with legislative requirements.
If the committee has concerns about the utilisation of funds or the specifics of a cash settlement, the committee should engage in a transparent discussion with the owner about their specific concerns.
Applicable Legislation – Strata Schemes Management Act 2015
163 Use of insurance money by owners corporation
- An owners corporation that receives money from an insurer for the destruction of or damage to a building must immediately apply that money in rebuilding, replacing, repairing or restoring the building.
- This section does not apply to an owners corporation if the owners corporation determines, by unanimous resolution, that the money is not to be so applied.
- This section is subject to any order made under the Strata Schemes Development Act 2015.
This post appears in the March 2024 edition of The NSW Strata Magazine.
Tyrone Shandiman
Strata Insurance Solutions
E: tshandiman@iaa.net.au
P: 1300 554 165
This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisenent Australia AFSL No 240549, ABN 15 003 886 687.
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