Who insures a strata building in Western Australia?

Part three of our series on strata levies and paperwork in Perth. If you have not read part one on scheme types, start there, because the answer to this question depends entirely on which kind of scheme you are in.

The duty, in one paragraph

A strata company must ensure that all insurable assets of the scheme are insured against fire, storm and tempest (excluding damage by sea, flood or erosion), lightning, explosion and earthquake, to replacement value. It must also be insured against damage to property, death, bodily injury or illness for which it could become liable in damages, for not less than $10,000,000. That is section 97(1).

The phrase that does all the work

Everything turns on insurable asset. Regulation 9 of the Strata Titles (General) Regulations 2019 includes in that definition the buildings on the parcel of a strata scheme, whether or not they are shown on the scheme plan, along with carpet and floor coverings on and within common property that are not temporary.

So in a built strata scheme the strata company insures the building itself, not merely the common areas. This is why in an older walk-up the insurance premium can be the biggest single component of the levy. It is also why owners in built schemes should not be separately insuring the structure of their own apartment, because they would be paying twice.

Survey-strata works the other way

The Act says so in a note to section 97(1): the owner of a lot in a survey-strata scheme is responsible for insuring infrastructure on the lot. You insure your own dwelling. The strata company insures whatever insurable assets sit on the common property, such as a shared driveway, retaining walls or shared services, and carries the public liability cover for the scheme.

If you are buying into a survey-strata scheme and nobody has mentioned building insurance, that is because it is your job.

What happens to the money after a fire

Insurance money received after damage must normally be applied to rebuilding, replacing, repairing or restoring the asset (section 97(5)).

In a survey-strata scheme the strata company can instead resolve without dissent that some or all of the money is not to be used that way, saying how it is to be distributed or used, provided the affected area is left in a safe condition (section 97(6)). A built scheme has no equivalent. This matters more than it sounds: in a built scheme, the building gets rebuilt.

Single-tier schemes get their own rules

Schedule 2A of the Act applies to single tier strata schemes, and Part 5 of it deals with insurance.

• Insurance of insurable assets within a lot is at the discretion of the owner of that lot (clause 53B(1)). The strata company can take that function on by ordinary resolution, and revoke it the same way.
• If insurable assets are wholly within common property, insuring them is not at an owner’s discretion (clause 53B(4)).
• For common property, the strata company must insure and carry liability cover (clause 53C(1)), unless there is effectively no common property beyond boundary fencing or empty cubic space, or the strata company resolves without dissent that the duty is not to apply.
• That opt-out is not permanent. Any lot owner can serve written notice requiring the duty to apply, and the resolution stops having effect one month later. In a 2-lot scheme the notice goes to the owner of the other lot.
• Where the strata company does hold the insurance function, clause 53D sets the same perils and the same $10,000,000 liability minimum, with a fine of $3,000 for not complying.

If you are buying a duplex or a villa, do not assume there is a common building policy. Ask, and ask to see the certificate of currency.

The certificate is not optional paperwork

Copies of the certificates and schedules for the required insurance, current as at the date of the meeting, must be presented at every annual general meeting (section 127(3)). If a scheme cannot produce a current certificate of currency, that is a question worth pressing before you buy.

Who carries the risk between contract and settlement

The strata company insures the building. That does not mean the strata company carries your risk while a sale is on foot.

Under the 2022 General Conditions, risk in the property passes from seller to buyer at the earliest of three moments: the purchase price being paid in full, settlement occurring, or the buyer being given possession. Whoever holds the insurance policy makes no difference to that date.

Where a buyer takes possession before settlement, the contract normally requires them to insure the building for full replacement value and to hold public liability cover of twenty million dollars. For a strata lot there is an exemption, at clause 14.7, but it is not automatic. The buyer has to prove to the seller that the strata company has taken out and is maintaining cover for the same risks and the same liability. The seller can still require the buyer to take out additional cover on top.

And if a claim arises, clause 14.8 puts the proceeds where the Strata Titles Act and the strata company direct them, not with the individual buyer.

The practical point for a buyer is simple. Ask for the certificate of currency, check what it covers and for how much, and do not assume that the strata company’s policy is doing a job it was never written to do.

The whole series

• Part 1. Which kind of strata scheme is it?
• Part 2. What your strata levies actually pay for
• Part 3. Who insures the building? (you are here)
• Part 4. What changes with the size of the scheme
• Part 5. How to read a 10-year plan
• Part 6. By-laws, and what unpaid levies mean at settlement
• Part 7. What a seller must tell you before you sign

This article is general information about how strata schemes work in Western Australia. It is not legal, financial or tax advice, and it is not a substitute for reading the scheme plan and the registered by-laws for the particular scheme. Rules change and every scheme differs. If something turns on it, check the scheme documents or get advice.