This article and Q&A are about building sum insured, valuations and Strata properties in Victoria. Are you aware that approximately 70,000 buildings in Victoria are now required to obtain a valuation? If you are a tier 1 – tier 4 strata property, you need to organise this asap. We show you how to organise this for your Victorian strata property quickly and easily.
Table of Contents:
- QUESTION: Other owners in our small scheme don’t want to get an insurance valuation in case the premium increases. I’m sure we are underinsured. What do I do? What is the owners corporation manager’s responsibility here?
- QUESTION: Is there a suggestion to align building valuation with maintenance plans schedule?
- ARTICLE: Are you living in one of the 70,000 Victorian strata buildings that need to take action NOW?
Question: Other owners in our small scheme don’t want to get an insurance valuation in case the premium increases. I’m sure we are underinsured. What do I do? What is the owners corporation manager’s responsibility here?
I’m a resident lot owner in a group of 4 free-standing townhouses. We have a shared driveway, a small garden, and service supply lines but no common buildings. Our last building valuation was four years ago. I believe we’re very underinsured.
Two other lot owners are investors and prefer low insurance fees. At the next AGM, I expect I’ll be outvoted again as owners most likely won’t want to authorise payment for a re-evaluation or increase the building insurance.
Given the current context of massive building cost hikes with shortages in supply and labour and associated building company collapses, is our OC manager responsible for recommending building valuations before five years? Are owners corporation managers under regulatory and ethical obligations to advise lot owners to ensure building insurance is more than the value of the buildings?
Can I arrange my building insurance? Or, as the townhouses are free-standing, can I obtain add-on building insurance for my property? If so, how do I go about this?
How can I ensure the building insurance for my townhouse is not held artificially low by others?
Answer: The owners corporation manager can advise best practice, however, it is ultimately up to the owners corporation to make the decision.
Section 65(1) of the Owners Corporations Act 2006 (Vic) (“the Act”) states:
65. Valuation of buildings
1. An owners corporation must obtain a valuation of all buildings that it is liable to insure, save for tier 5 owners corporations (two-lot subdivisions or services only owners corporations), which are exempt from compliance with this section.
The legislation also provides under section 65:
2. the valuation must be obtained every 5 years or earlier as determined by the owners corporation.
Section 65 (3) also provides that the report must be presented at the next annual general meeting after it is received. We recommend that a valuation be obtained every three years to ensure that the owners corporation is adequately insured, however as stipulated by the Act, this time frame is for the owners corporation to determine. The owners corporation manager can advise best practice, however, it is ultimately up to the owners corporation to make the decision. The owners corporation manager should minute the recommendation and note any objections to this.
Should the owners corporation fail to undertake a valuation as stipulated by the legislation, as the lot owner, you can make an application to the Victorian Civil and Administrative Tribunal (VCAT) to have the matter heard under section 162(a). We would recommend that you approach your owners corporation manager in the first instance and request that they distribute information to all lot owners advising of the risks of under insurance.
Alternatively, you are also able as a lot owner to take out your own insurance cover in respect to the damage or destruction of your lot and/or your interest in the common property.
This can be over and above the insurance provided by the owners corporation. You would still be liable to pay a portion of the owners corporation’s insurance policy in accordance with lot liability as part of your annual fees.
We would recommend that you contact the owners corporation’s broker to see what they can offer you in terms of a policy.
There is a legal requirement under the Act for the building to be insured for full replacement and reinstatement value. The common property and common area contents must be fully insured.
Advice from our licensed insurance or licensed insurance broker notes “the market value of a particular property has no bearing on the cost to rebuild it. The replacement value referenced in the Act includes the construction cost, as well as other costs associated with the removal of debris, labour and materials, compliance with current building codes and local council planning provisions, professional fees, taxes and more. In the current environment of increasing natural disasters, rising labour and building material costs, having adequate insurance in place is more important than ever.”
Further, it is important to advise the lot owners that, should there be a shortfall for the rebuilding of the property in the event of a disaster, it is the responsibility of the owners corporation to fund that gap/shortfall.
Should the owners corporation choose to undertake a valuation and further resolve not to approve the recommendation to increase cover, it is possible the owners corporation may face litigation for disregarding such valuation and allowing the building to be purposefully under insured.
We would reiterate to the members that obtaining a professional insurance valuation comes well under cost when compared to the potential financial losses and the cost of litigation that could occur as a result of an underinsured loss.
Sim Firns The Knight Email P: 03 9509 3144
This post appears in the October 2023 edition of The VIC Strata Magazine.
Question: Is there a suggestion to align building valuation with maintenance plans schedule?
Answer: There is no crossover between these two reports in terms of content.
Both insurance valuations of the building and a maintenance plan should be updated every 5 years, this is industry best practice and often the insurers will request this of a scheme.
There is however no crossover between these two reports in terms of content.
A building valuation, also known as an insurance replacement valuation, is a report outlining the cost to rebuild your strata scheme if the worst was to happen and it was completely destroyed. This valuation guides the committee and the insurer to work out a suitable insurance policy based on this cost of rebuilding/ replacing. This is very different to a market valuation (which a lot of people get confused by), whereby the value of the property on the real estate market is determined i.e. what could it currently be sold or leased for.
The maintenance plan serves the purpose of anticipating major expenditure upon a timeline allowing the owners corporation to budget money aside in the form of a maintenance fund to meet these future expenses.
Dakota Panetta Solutions in Engineering E: dakotap@solutionsinengineering.com P: 1300 136 036
This post appears in the May 2022 edition of The VIC Strata Magazine.
I’m chatting with Paul Cummaudo, Director at Roscon Property Services. Roscon is a specialist provider of property reporting and facilities management services to businesses in the Owners Corporation and Insurance industries. I contacted Paul for a chat after one of Roscon’s sister companies – BugdetVals – put out a recent alert about changes to the frequency of building valuations due to the new strata legislation in Victoria. You may be aware, the Victorian strata legislation was amended and the amended act commenced on 1 Dec 2021.
During the video we chat about:
- Approximately 70,000 – yes that’s 70,000 – buildings in Victoria need to take action now and organise a valuation.
- Who does this affect? All tier 1 – tier 4 buildings in Victoria. That’s any building that is three or more lots.
- If you live in a strata building of three or more lots, what do you need to do?
- How BudgetVals has been set up to assist, quickly and easily.
You can access BudgetVals here.
Paul Cummaudo Roscon Group E: info@roscon.com P: 1800 767 266This post appears in Strata News #535.
Read next:
- VIC: Q&A Strata Insurance and AGMs for a Small Owners Corporation
- Insurance Commissions Within the Strata Industry
Please note this Q&A response is not intended to be personal advice and you should not rely on it as a substitute for any form of advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 Licence Number: 229092 trading as Whitbread Insurance Brokers for further information.
This information is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 Licence Number: 229092 trading as Whitbread Insurance Brokers for further information or refer to our website.
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