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Strata-titled buildings often suffer from a wide range of defects, ranging from structural and waterproofing issues to dangerous fire protection problems. A 2019 joint study by Deakin and Griffith Universities revealed that 71% of the sample 66 Queensland properties built between 2008 and 2017 were afflicted with at least one defect – an alarming statistic for lot owners, residents, and strata managers.
To help address this issue, changes to the Body Corporate and Community Management (Standard Module) Regulation (2020) came into effect in Queensland in June 2022. Under Section 181, Bodies Corporate must include on the second AGM agenda a motion to have an independent qualified person complete a defects report. Depending on their severity, defects can significantly impact insurance coverage. In line with the insured’s duty of disclosure, all defects must be disclosed to the holding insurer and any proposed future insurer that has been asked to offer terms.
Bodies Corporate should be aware of any building and safety issues that exist within their property and should be moving towards rectifying these known issues. Unanticipated risks that lead to loss of life and property damage claims can have catastrophic consequences, so it is essential these risks are identified and rectified promptly. Insurers are no longer willing to provide insurance for buildings with defects that do not have a clear rectification plan. For buildings with identified defects, insurers are requesting the defects report, the scope of works to rectify the defects, signed contracts, the meeting minutes that approve the works, and the timeline for completion before they will consider offering cover.
When issues are known to the Body Corporate, this is a liability exposure for them and the Insurer. Whilst there are standard defect exclusions in the property section of the insurance policy wording, there are rarely defect exclusions in the liability section of the policy. In some instances, this may be applied by endorsement at the insurer’s discretion. Liability insurance is offered on the basis that there are no known events that may result in a claim. A documented defects register with no rectification plan in place could be used as evidence of Body Corporate negligence.
It is important to note that insurers no longer see a claim lodgement with the Queensland Building and Construction Commission (QBCC) as sufficient action to repair critical defects. The QBCC process can be arduous and lengthy, and it does not guarantee the builder will rectify the defects. This leaves the Body Corporate exposed if an incident directly related to the defects occurs.
We recommend Body Corporates seek independent legal advice for buildings with defects in relation to:
The Body Corporate has a responsibility to complete repairs to mitigate loss, just as it would in the event of an insurance claim. This responsibility is notwithstanding any efforts by the builder to fix defects under warranty.
To find out more about these changes and what they could mean for you, please reach out at any time.
Client Executive – Property
