Question: With equal lot entitlements, would the owner of the largest unit only receive 1/7 of insurance proceeds in a total loss?
Our CMS lists all 7 units in our block as equal entitlement, so payment of the insurance premium is divided by 7. There is one unit in the complex that takes up 40% of the area and, based on recent sales, is worth more than 3 times any of the other units.
If our scheme experienced total destruction, would each unit owner receive 1/7 of the insurance proceeds? Could the owner of the large unit end up with just a fraction of the price they paid for it, with everyone else benefiting? We would appreciate advice on whether lot entitlements can be adjusted to reflect the relative value of each lot better.
Answer: No one is automatically “entitled to 1/7” of an insurance payout. Distribution of insurance proceeds depends on whether the scheme rebuilds or terminates.
In short, the body corporate insurance is held by the body corporate over the common property and buildings. In a total loss, the insurer pays the claim to the body corporate, not to individual owners. No one is automatically “entitled to 1/7”. What happens to that money depends on whether the scheme reinstates or terminates:
- Typically they will rebuild: proceeds go to reinstating the buildings. Each owner effectively gets their unit reconstructed. Lot entitlements govern premium contribution, not distribution, so the large-unit owner isn’t disadvantaged, and their larger lot is rebuilt like-for-like.
- If they take cash and terminate: this is where the lot entitlement question gets a little trickier. The answer I believe now splits two ways depending on the termination pathway. Under a traditional termination by resolution without dissent, proceeds would distribute based on the interest schedule lot entitlements. Equal entitlements would mean 1/7 each, and yes, the large-unit owner could receive well below their unit’s value. But under the newer economic-termination route introduced in 2024 (75% support plus a termination plan), proceeds are allocated by relative market value of each lot, which protects the larger lot owner.
As always, you are best to test this theory with your insurance broker regarding specific policy wording. In my opinion, the larger lot Owner is protected via the rebuild scenario, as well as the termination and cash-out scenario, due to the motion being without dissent or market value anyway.
This post appears in the August 2026 edition of The QLD Strata Magazine.
Zac Gleeson
GQS
E: zac@gqs.com.au
P: 0419 755 896
Leave a Reply