Construction costs have sky rocketed in recent years and a critical aspect often overlooked is the accurate assessment of property valuations, especially concerning insurance coverage. In this article, we delve into the statutory obligations, risks of under valuation, compliance requirements, and the role of professional valuation services in safeguarding strata communities.
Statutory Duty and Financial Obligations
Under the Strata Schemes Management Act 2015 (NSW), owners within a strata community bear a statutory duty to insure the building for its full replacement value. This responsibility extends to all members of the owners corporation, with joint and several financial liability for any shortfall in insurance coverage compared to the actual replacement cost.
Compliance with Legal Requirements
Sections 160-161 of the Act and regulation 39 of the corresponding Regulations stipulate specific requirements for insurance coverage in strata communities. These mandates ensure that policies cover all buildings, common property, and owners corporation assets for full rebuilding or replacement value. Additionally, policies must cover incidental costs such as debris removal, professional fees, and escalation costs.
Strata Schemes Management Act 2015 - Section 160
Strata Schemes Management Act 2015 - Section 161
Strata Schemes Management Regulation 2016 - Regulation 39
The Risks of Under Valuation
Underestimating the replacement value of strata properties can have severe repercussions. Inadequate insurance coverage leaves communities vulnerable, with insufficient funds to rebuild or repair damaged structures in the event of a catastrophe. This oversight can lead to prolonged recovery periods, financial strain, and disputes among stakeholders.
The Role of Professional Valuation Services
Professional valuation services play a crucial role in ensuring the accuracy and reliability of property valuations. Experienced valuers have the expertise to assess all relevant factors, including building specifications, market trends, and regulatory requirements, to determine the true replacement value of strata properties.
When calculating the replacement value, the valuer should consider various factors, including:
Time Allowance: Accounting for the duration required to rebuild the building entirely, considering approvals from local councils and statutory authorities, removal of hazardous materials, delays due to community objections and legal appeals, and other relevant factors.
Property Restrictions: Assessing onerous easements, encroachments, zoning issues, flood risks, landslips, main roads acquisition, and access restrictions.
Debris Removal Costs: Estimating the full expenses for removing and disposing of debris, including contents within the building such as asbestos, lead dust, lead paint, deteriorated fiberglass insulation, cement, and lime dust.
Heritage Restrictions: Factoring in any restrictions or demands imposed on the rebuilding program due to heritage classification, including those set by local council, State government, and Federal government categories.
Professional Fees: Including all fees payable to professionals involved in the rebuilding or replacement process, such as architects, engineers, electricians, surveyors, and lawyers, along with associated costs for terminating existing schemes, authorising new plans, and covering court expenses, including appeals.
Surge in Costs: Allowing for increased costs resulting from material and labor shortages due to a significant building surge, potentially triggered by major events or catastrophes elsewhere in Australia.
Taxation: Considering the full amount of GST and any other applicable taxes.
Catastrophe Coverage: Providing a suggestion on the percentage increase needed to cover potential catastrophic events adequately.
CPI Increase: Allowing for an increase in the Consumer Price Index (CPI) that may occur during the rebuilding period.
Property Upgrades: Accounting for any necessary upgrades to the insured property to comply with current construction codes and regulations.
Benefits of Up-to-Date Insurance Valuation
Maintaining up-to-date valuations offers numerous benefits to strata communities:
Financial Protection: Accurate valuations ensure adequate insurance coverage, protecting against financial losses.
Risk Mitigation: Identifying and addressing potential gaps in insurance coverage helps mitigate the risk of underinsurance and associated liabilities.
Transparency and Accountability: Regular valuations promote transparency and accountability, instilling confidence among owners and stakeholders.
Effective Decision-Making: Armed with accurate valuation data, strata committees can make informed decisions regarding insurance policies and risk management strategies.
Accurate property valuations are essential for protecting strata investments and ensuring financial security. By adhering to statutory obligations, complying with legal requirements, and engaging professional valuation services, strata communities can mitigate risks, promote transparency, and safeguard their assets for the future. Partnering with top-tier strata insurance brokers and valuers, Compass Strata ensures comprehensive protection and accurate valuations for you. Let's prioritise accurate valuations to build resilient and prosperous communities.
