Insurance issues where some units on a plan of subdivision are not included on the schedule of Lot Entitlement and Liability.
Greg Honeyman from MBCM Strata Specialists Ballarat was appointed as Manager for a brand new Owners Corporation in November 2021. When MBCM took over, the plan of subdivision showed that there were 10 lots on the Plan, but only 6 lots shown on the Schedule of Lot Entitlement and Liability. The developer advised that they had instructed the surveyor that the other 4 lots which fronted the street were to be sold as independent houses and not part of the Owners Corporation.
In Greg Honeyman’s experience, this resulted in a grey area for the owners’ insurance, as it would mean that these four dwellings would have been insured under ordinary housing policies, which are totally inappropriate for strata developments. It would also inevitably result in major future problems in the event of a claim on their insurance policies.
MBCM Ballarat quickly ascertained that the Plan of Subdivision had not yet been registered, which meant that it was a straightforward task to make changes to the plan of subdivision. Greg advised both the developer and surveyor that under Section 59 of the Owners Corporations Act (2006)
“An owners corporation must take out reinstatement and replacement insurance for all buildings on the common property in accordance with this Division.” Further, under Section 54 of the Act, “An insurable building includes any building on the plan of subdivision.”
The risks to the future purchasers of these dwellings as well as the potential for professional and reputational damage to the developer, surveyor, real estate sales agent and conveyancer far outweighed any potential benefit. Once this was understood, the developer quickly instructed the surveyor to amend the Schedule of Lot Entitlement and Liability to include these additional four units.
Greg Honeyman demonstrated to all stakeholders involved in the development of the benefits of ensuring a single comprehensive insurance policy which covers all the units in a strata development, as well as the risks in allowing units to be insured with totally inappropriate insurance policies.
The outcome was that MBCM Ballarat were then able to prepare Owners Corporation Certificates for inclusion in the Section 32 documentation which provided comfort to all purchasers that their new dwellings were fully covered for the correct Building Sum Insured in the event of any potential future insurance claim. If you would like us to conduct an obligation-free assessment of your Owners Corporation insurance, please contact your local franchisee through our website at www.mbcm.com.au.