Property 101: Bodies corporate and storm damage
GUEST OBSERVER
Dealing with the aftermath of a storm is difficult for everyone affected.
It is particularly difficult for Bodies Corporate because they must also deal with upset lot owners, dispossessed tenants, and damage caused to common property. But where exactly does a Body Corporate’s obligations start and end? Dealing with a flooded foyer is one thing, but what happens when the roof of your apartment complex has been blown away?
What does a Body Corporate do then?
Be Proactive, Act Promptly
In the aftermath of a storm, a Body Corporate should be proactive. It should notify its manager and insurers without delay. Ideally, the Committee for the Body Corporate should get someone on site as soon as possible to assess any damage, and circulate a notice to lot owners and tenants asking them to report any damage.
If a lot owner or a tenant reports any damage to a Body Corporate, it is extremely important for the Body Corporate to act promptly. The worst mistake a Body Corporate can make is to do nothing or leave it to their lot owners to deal with.
In MAGOG (No 15) Pty Ltd v The Body Corporate for the Moroccan [2010] QDC 70, the Court found that Bodies Corporate have a duty to repair and maintain the common property in good condition, including, to the extent that common property is structural in nature, in a structurally sound condition. The Court also found that, where a Body Corporate fails to meet these obligations, they may be liable for any property damage caused as a result, as well as pure economic loss if that loss is reasonably foreseeable.
In other words, when a storm damages common property and that damage causes consequential damage or loss to a lot, the Body Corporate may be responsible. If a Body Corporate does not, it places itself at risk of being sued, as occurred for the Body Corporate for the Moroccan. That is why being proactive and acting promptly is so important.
Have Insurance
When it comes to insurance, the saying is that it is better to have it and not need it, than need it and not have it. The same applies to Bodies Corporate. But with Bodies Corporate insurance is often a statutory requirement. Generally, Bodies Corporate are required to insure for its full replacement value:
a. the common property;
b. all Body Corporate assets;
c. each building in which a lot is located; and
d. common walls between adjoining lots.
In addition to this, Bodies Corporate must ensure that their insurance policy meets with certain minimum requirements. Generally, this requires an insurance policy that:
a. covers damage, such as storm damage, to the greatest practicable extent;
b. covers the costs of reinstating or replacement of insured buildings, including the cost of taking away debris, to the greatest practicable extent; and
c. provides for the reinstatement of property to its condition when new.
Therefore, before a storm strikes, Bodies Corporate must ensure that they have the proper insurance in place. This will not only help them discharge their statutory obligations but also help protect them and their lot owners when they need it the most.
Know who is responsible for the Excess
Having insurance is one thing. Paying the excess is another. Generally, a Body Corporate is allowed to purchase an insurance policy even though an excess may be payable on that policy. For an event affecting only one lot, the owner of that lot is liable to pay the excess unless the Body Corporate decides it is unreasonable in all the circumstances for the owner to bear the liability. For an event affecting two or more lots, or one or more lots and common property, the Body Corporate is liable to pay the excess unless it decides it is reasonable in all the circumstances for the excess to be paid for by:
a. the owner(s) of a particular lot; or
b. the owner(s) of a lot and the Body Corporate.
What this means is that if a storm causes damage to only one lot or even a handful of lots, the Body Corporate may require the affected owner(s) to pay the excess.
A similar situation was considered recently in the matter of The Point Coolum Beach [2014] QBCCMCmr 285 (4 August 2014). In this case, the Applicant was the owner of a lot that suffered water damage. The water damage was covered by the Body Corporate’s insurance, but a $20,000 excess was payable. The Body Corporate considered that it was reasonable in all the circumstances for the Applicant to bear the liability for the excess, and the Adjudicator who heard the case agreed.
The Adjudicator considered a variety of factors before ruling in favour of the Body Corporate, but particular emphasis was paid to the fact that:
a. the Body Corporate properly acquired its insurance in accordance with motions heard at annual general meetings;
b. the Body Corporate manager fully informed all lot owners, including the Applicant, that the excess payable in the event of water damage was $20,000; and
c. the Committee properly identified that the event only affected the Applicant’s lot and considered that it was reasonable for the Applicant to bear liability for the excess.
Therefore, when a Body Corporate purchases insurance, it is not only important that this is done properly, but that lot owners are fully informed of any excesses payable following an insurable event – such as a storm. By doing this, Bodies Corporate could save themselves the expense of hefty excesses, much like the Body Corporate for The Point Coolum Beach which effectively saved itself $20,000.
Conclusion
The first step for Bodies Corporate dealing with storm damage is to be prepared. They should have insurance and make sure lot owners understand how those policies work – particularly when it comes to the payment of any excess.
In the aftermath of a storm, a Body Corporate should be proactive and act promptly.
Mario Esera is senior Associate, Piper Alderman and can be contacted here.
