Is it ethical for a strata manager to engage their own company for a building insurance valuation without owner consent?

In New South Wales, the legislative requirement to obtain insurance rebuild valuations every five years was abolished in 2015. Currently, there are no statutory mandates to procure an insurance rebuild valuation. However, the legislation does require that buildings are insured for their full replacement value, which can place a higher compliance responsibility on the owners corporation.

When dealing with insurance valuations, it is essential to follow appropriate processes to avoid any perceptions of conflicts of interest, whether actual or perceived. The example in the question highlights this issue: despite owners at an AGM unanimously voting to retain the existing level of building insurance coverage, the strata manager engaged their own associated company to prepare an updated valuation report without advance notice or owners' consent. This resulted in a recommendation to increase cover, raising concerns about transparency and fairness.

Your situation raises several concerns, particularly regarding conflict of interest. Here are my recommendations:

• Request Evidence: Ask the strata manager to provide evidence that the owners corporation agreed to the updated valuation. This is crucial, especially given the potential conflict of interest.
• Show Cause: If the strata manager cannot provide this information, it is reasonable to request that they show cause as to why the owners corporation should bear the cost of the valuation report, especially when it was conducted by an associated company without prior consent.
• Conflict of Interest: If the strata manager receives a commission on insurance, they could potentially benefit from an increased building sum insured through higher commissions. This should be transparently disclosed.
• Independent Valuation: Given these circumstances, it is advisable to use an independent valuer who has no ties to the strata manager. This helps ensure that valuations are impartial and in the best interest of the owners corporation. It may be advisable to seek an independent valuation.

In conclusion, while there are no longer statutory requirements in NSW for regular insurance rebuild valuations, ensuring your building is insured for its full replacement value remains a critical responsibility. By being aware of potential conflicts of interest and insisting on transparency and independent valuations, owners corporations can navigate these challenges effectively and maintain fair and adequate insurance coverage.

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.