VIC: Should higher rebuild valuations mean higher strata insurance contributions?

Question: The insurance renewal for three lot scheme has valued the lots at different amounts. Should the lot with a higher rebuild valuation contribute more to the renewal premium?

For our previous policies, all three units in our strata complex were valued equally for insurance purposes, and our insurer charged one combined premium amount.

For this renewal, the townhouse has a rebuilding value of $600,000, and the two villa units have $500,000 each. Should the townhouse owner pay extra towards the policy?

Answer: Review the plan of subdivision for the property, as it may already account for variations in rebuild values through adjusted lot liability or lot entitlement.

Under Sections 23 and 23A of the Owners Corporation Act 2006, fees levied by an owners corporation to cover expenses including insurance can generally be allocated based on lot liability. However, the owners corporation can levy insurance expenses based on lot entitlement if they choose to do so.

The Plan of Subdivision for your property, which is registered with Land Use Victoria, specifies each lot’s entitlement and liability within the owners corporation.

Owners should review the plan of subdivision for the property, as it may already account for variations in rebuild values through adjusted lot liability or lot entitlement. This could enable the owners to fairly allocate the higher insurance costs associated with the townhouse if such provisions are reflected in the plan.

If the current lot entitlements or lot liabilities do not reflect what the owners believe to be fair – for example, if one unit has a significantly higher rebuilding cost and owners would prefer to adjust entitlements to reflect this – there is a formal process for changing the registered plans – legal advice is recommended.

23 Owners corporation may levy annual fees

1. An owners corporation may set annual fees to cover—
   
   1. general administration; and
   2. maintenance and repairs; and
   3. insurance; and
   4. other recurrent obligations of the owners corporation.

3. Subject to subsection (3A), the annual fees set must be based on lot liability.

23A Owners corporation may levy fees in relation to insurance

1. In addition to the annual fees levied under section 23, an owners corporation may levy fees to cover the costs of the premium for reinstatement and replacement insurance taken out in accordance with Division 6 of Part 3.
2. The fees levied under subsection (1) must be based on lot entitlement.

This post appears in Strata News #739.

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.