We have been asked about the process for a building evacuation due to strata building defects.
Table of Contents:
- QUESTION: If a building becomes uninsured due to strata defects, is evacuation a the choice of individual lot owners or are they required / ordered to leave?
- QUESTION: My unit is in a block that is undergoing extensive building remediation works and as a result, my tenants have moved out. I put in a loss of rent claim through strata but it was rejected.
- QUESTION: For situations such as Opal and Mascot Towers where Landlords are suffering loss of rent due to evacuations, can loss of rent be covered by insurance or some other means?
Question: If a strata building becomes uninsured due to a safety issue on common property, will the building be required to be vacated? Or is the evacuation of the building a choice that individual owners can make as to whether they go or not?
Answer: A demonstrated failure to address known safety issues can increase negligence of the body corporate should that safety issue materialise to an injury claim.
An Owners Corporation should take reasonable measures to address safety concerns that pose a significant risk to the safety of occupants.
A demonstrated failure to address known safety issues can increase negligence of the body corporate should that safety issue materialise to an injury claim.
When the building is insured, some policies have conditions requiring people to take reasonable care to comply with safety requirements, Australian standards or regulation of any government or local government body.
Once a building becomes uninsured, an insurer has no jurisdiction over what happens in a building and it therefore falls to the committee & owners to determine appropriate measures which can include evacuation in the most extreme cases.
An owners corporation should take actions to properly address hazards that pose an undesirable risk to the safety of occupants. Depending on the severity of the hazard, consideration should be placed on:
- Discussing the issue with the committee and determining whether the issue is actually a safety hazard as not all concerns raised by owners/tenants are safety issues;
- Complying with any government or council orders;
- Engaging an appropriate safety consultant to assess the risk and provide recommendations on addressing safety issue/s;
- Risk minimisation – such as cordoning off hazardous areas until the safety issue is addressed.
If an insurer has declined to offer cover due to safety issues the owners corporation should seek advice from the insurer or their insurance broker on what actions they need to take to become insurable again.
Tyrone Shandiman
Strata Insurance Solutions
T: 07 3899 5129
E: tshandiman@iaa.net.au
This post appears in the December 2020 edition of The NSW Strata Magazine.
Question: My unit is in a block that is undergoing extensive building remediation works and as a result, my tenants have moved out. I put in a loss of rent claim through strata but it was rejected.
I’m the owner of a unit in a block that is undergoing extensive building remediation works. This has caused further damage to my unit and has also caused my tenant to vacate the property. The unit is unliveable, I am unable to replace the tenant and I am losing rent weekly.
The building works have now stalled and I have no timeframe on when the issues will be fixed.
I put in a loss of rent claim through strata but it was rejected. Any help you could give on what I should do would be very much appreciated.
Answer: It is important to note that in order for a loss of rent claim to be considered there must be damage to the property that falls under Section 1 of the Insurance policy.
The first step is ensuring that the insurer has been formally notified that a claim on the policy has been made. All owners are entitled to lodge a claim against the policy in this regard, so making sure the declinature has not come from the agent/committee is critical.
It is important to note that in order for a loss of rent claim to be considered there must be damage to the property that falls under Section 1 of the Insurance policy. ie. The damage must be from an insured event such as water damage or storm damage.
If a claim has been lodged, was an assessor appointed to inspect the unit? In the absence of an assessor what evidence has been supplied to the insurer to confirm that the unit is no longer habitable? At this stage, reference should be made to the policy wording document to confirm the level of cover available.
If the insurer has issued the owner with a formal decline letter, the owner is able to dispute this via the insurer’s Complaints and Dispute process.
Separate to the above, the owners corporation has a duty to repair and maintain common property.
If the owners corporation has failed in their duties, you may choose to pursue further, by applying for an order through the Tribunal.
Michael Smythe
NSW Branch Manager
Civium Communities
E: michael.smythe@civium.com.au
This post appears in Strata News #416.
Question: For situations such as Opal and Mascot Towers where Landlords are suffering loss of rent due to evacuations, can loss of rent be covered by insurance or some other means?
In light of the events in Sydney in Opal and Mascot Towers, occupants have had to vacate the premises because of structural issues. I understand Insurance companies can not pay claims for loss of rent because the issue is one of Faulty workmanship / structural which is an exclusion under the Strata Insurance policies.
How are landlord/owners recouping the cost of loss of rent for their investment properties in these buildings? Is the government chipping in, the developer or am I mistaken, and the Strata Insurance policy is covering the loss of rent?
Answer: There is no means by way of insurance to cover the loss of rent or accommodation costs caused by latent defects and/or rectifying faulty or defective workmanship.
Tyrone Shandiman: This is an interesting one.
Generally, strata insurance covers loss of rent (landlords) or temporary accommodation (owner occupiers) where damage insurable by the policy causes the property to become uninhabitable or unfit to be occupied for it’s intended purpose.
Strata insurance policies have exclusions related to latent defect and/or rectifying faulty or defective workmanship, for this reason, it is our view that insurance will not cover losses owners incur from Opal Tower.
It is our understanding that currently, there is no means by way of insurance to cover the loss of rent or accommodation costs caused by latent defects and/or rectifying faulty or defective workmanship.
In the case of Opal Tower, we would recommend the owners/owners corporation contact a solicitor to review their options.
Christopher Kerin: The advice from Tyron looks about right but it always depends upon the wording of the particular policy.
Tyrone Shandiman
Strata Insurance Solutions
E: tshandiman@iaa.net.au
T: 07 3899 5129
Christopher Kerin
Kerin Benson Lawyers
E: enquiries@kerinbensonlawyers.com.au
P: 02 8706 7060
This post appears in Strata News #289.
Have a question about loss of rent or something to add to the article? Leave a comment below.
Read next:
- Water Damage Insurance Claims and The Excess in Strata Properties
- NSW New case law: managing agent and landlord found liable for their tenant’s fall in her apartment
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of advice.
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“Answer: There is no means by way of insurance to cover the loss of rent or accommodation costs caused by latent defects and/or rectifying faulty or defective workmanship.
Tyrone Shandiman: This is an interesting one.
Generally, strata insurance covers loss of rent (landlords) or temporary accommodation (owner occupiers) where damage insurable by the policy causes the property to become uninhabitable or unfit to be occupied for it’s intended purpose.” …….MICHAEL SAYS due to a catastrophe being a Declared Catastrophe and the conditions/limitations of that clause being operative.
Michael Cretikos says:
I wish to comment on this vexing question! Regarding the payment for Loss of Rent/Temporary Accommodation expenses; refer to Longitude Residential Strata Policy Wording
Loss of Rent/Temporary accommodations expenses arises as a result of the Catastrophe clause 5.1
It is my understanding that the catastrophe has to be a declared catastrophe by some third party such as, in the Longitude policy, the state ordering an evacuation and issuing a state of emergency declaration. ( See the exact wording in the policy wording under Cl 5.1) In other policies, such as CHU and others, the declaration is also made by a third party, in this case, by the ICA Catastrophe Code. In my view, both types of declaration are unfair/illegal and I have brought this matter to the attention of NSW Fair Trading.
Following a declaration of a catastrophe being a DECLARED CATASTROPHE, Firstly the Additional Benefits for CATASTROPHE mentioned in the Schedule – that is for additional construction costs, caused by the catastrophe situation giving rise to higher materials and labour prices, to the maximum tune of 15% of the base BSI Value, will be made available and payable; Secondly, and sequentially and as a consequence of the catastrophe being a declared catastrophe, Loss of Rent/Temporary Accommodation, also to the maximum amount of 15% of the base BSI Value, will be payable. You need to read the definitions of Loss of Rent and Temporary Accommodation given by clause 15.16 (Longitude). https://www.lookupstrata.com.au/nat-loss-of-rent-evacuation-building-defects/ to see how they are calculated/assessed.
It is my view that seeing a lawyer might only be of value if you want to bring a class action against the insurance provider/s and that should be viewed with a great deal of circumspection.
In the Case of Opal Building and Mascot Towers, there was NO Catastrophe declared, in terms of the policy wording/PDS, so your chances of getting compensation for loss of rent/ temporary accommodation are zero.
I understand that the NSW Government, via Fair Trading, did provide some relief for tenants via a loan for accommodation costs for a maximum period of 12 weeks. That is another interesting one.
Michael Cretikos Registered Architect 5766
Hi Michael
Thanks for your comment. We have received the following reply from Tyrone Shandiman:
In basic terms, insurance policies contain an insuring clause, additional/optional benefits & exclusions.
In the case study of the reader, they rightfully point out that catastrophe cover is an additional benefit in the policy and the benefit may be operable if a government authority were to declare a state of emergency event.
It must be noted however, that policy exclusions override any insuring clause or additional benefit (unless specifically stated otherwise) – standard policy exclusions for latent defects and/or rectifying faulty or defective workmanship would mean that cover the event is not coverable as it is an excluded cause.
The intention of catastrophe cover is that it is designed to provide additional cover on your sum insured (15%-30%) if your property is damaged in a Catastrophe (state of emergency) event. The reason why this cover is important is in catastrophe events, re-build costs increase due to higher demand, which increases the cost of labour and building materials.
Catastrophe cover is usually only ever considered once the building sum insured is fully exhausted as the events covered by catastrophe are also covered by the building cover.
I’m afraid the reader may struggle to prosecute their argument of applying catastrophe cover for major defect events.