The Insurance Council of New Zealand is warning of the risks associated with buying a unit attached to other units in a building or complex that doesn’t have a body corporate.
The industry group’s CEO, Tim Grafton, said insurers may not provide cover in this situation because complexities can arise at claim time if some units in the complex are uninsured or have different levels of cover.
He said that while body corporates can be seen as adding extra cost and administration for owners, they offer a single point of insurance for the entire building, including units, shared spaces and common property.
Having everything covered by one insurer means claims can be handled simply and efficiently.
Often when more than one insurer is involved, shared spaces and common property don’t end up getting covered.
"Ultimately it can lead to a really nasty experience for owners - especially following a significant event that causes wide damage that isn’t insured,” Grafton said.
"Uninsured or underinsured units can cause repair delays, impacting on everyone’s ability to pick up the pieces and get back to normal."
The Insurance Council suggested those looking to buy within a multi-unit building, a multi-unit complex (multiple buildings), or a property that is attached to others, tell their insurer before they go unconditional.
"This means you can have a robust conversation about the type of property and what level of cover the insurer may offer to best to meet your needs - enabling you to make an informed decision to proceed with the purchase or not, and avoid possible pitfalls," Grafton said.
"Don’t get caught up in sales pitch from developers or agents. Properties are sometimes marketed as being body corporate-free to save owners time and money - but the ultimate outcome is that it won’t…
"Owning your own home is increasingly difficult for New Zealanders and we want to ensure buyers aren’t tripped up by steps to make properties appear more affordable when they could actually cause more expense in the future.
"With high-density housing one of the solutions to address New Zealand’s housing availability and affordability it is critical that property owners are able to appropriately protect their assets.”
For more information, see this guide produced by the Insurance Council.
13 Comments
Our family had tremendous difficulty in settling residential EQ claims with EQC & relative insurers. But the horror stories that we encountered concerning those caught up in apartments and their body corporates, cross lease sections semi- detached etc and even those with standard easements, certainly outstripped our dramas. Would never ever venture into property held under such titles.
Totally agree. A mate of mine was in ChCh and had his unit destroyed. Only problem was that his unit was declared a rebuild but 2 of his neighbour's were declared repairable. His place couldn't be demollished & rebuilt while his neighbour's insuurers insisted those 2 properties could be repaired. Took twice as long as my claim to get sorted (and that was long enough).
I know of one pair of units, where one of the two insurance companies managed the rebuild for the other, didnt seem to be a problem, just a delay.
I know another pair of units where both properties were sold and now neither can get insurance with any company because of increased flood risk, because the ground dropped. The previous owners each took a payout for increased flood risk, and thats the new issue. This story is too late for these owners, why so long coming? Bring back Youi, they insured anything.
'neither can get insurance with any company because of increased flood risk' - an example of the gradual retreat from flood exposed areas that insurers are quietly driving. Grafton talks as though the process will one day be necessary but it is in fact already underway. It sounds like the people who bought the flats you described have not done the due diligence necessary for any ChCh property in either a flood management or floor level control area. If the previous owners received an EQC payout for increased flooding propensity then the flats must be in a well known land elevation reduction zone as EQC had the eligibility criteria so screwed down for such payments that only extreme cases qualified.
Government is driving the retreat as much as insurers - they seethe risk of stranded assets necessitating a government buyout (see new managed retreat proposed Act). It's much better if the market solves this problem, with prices falling for risky properties, and better information on risks is part of the buyers, the lender and the insurers being able to make decisions that reflect their risk profile.
Foxy. I appreciate you are familiar with the Sumner area but suggest the case you mention may not have as much to do with the complex being under a body corporate arrangement as a difference of view on, among a number of issues, the amount available under the policy.
Oh undoubtedly, there was sufficient fuss and feathers amongst residents pre the quakes. In fact architecturally, in my opinion, an eyesore hardly made worse by the quakes. Ironically a design by one who was rather fond of criticising others. That is part of the mix that would preclude from willingly owning any property without clear independent title. We have friends over in the port sharing an historical access easement with five other properties. Still unresolved as to where council land starts and stops, who is responsible for the retaining walls/fencing and stormwater etc, thereon and how cost of repair might be pro rata. Looks like whole will need to be resurveyed and new titles issued to establish boundaries. Fairly hard to see these fish hooks emerging until an event like this.
FG. Lateral land movement along with survey pegs was one of the many expensive and challenging issues. Boundary fences and retaining walls once belonging to you or the neighbours or council were suddenly no longer within their old boundaries. Claims in Lyttelton with its old houses and ancient volcanic rock and often dry stack retaining walls were lots of fun. I feel for your friends. Yes, no-one foresaw these and many other similar tricky issues. When in Wellington I gaze on some of the many highly engineered access driveways and supporting retaining walls with a mixture of professional curiosity and memory driven traumatic stress disorder reaction.
Not quite fair Dale, the industry has since ChCh issued statements about the difficulties of settling multi unit claims. Grafton correctly identifies the worst category of multi units ie those not subject to body corporate arrangements. I was involved in a reasonable number of such claims down there and they were all horror shows. But to infer from his statement that complexes under B/C agreements were plain sailing would be wrong. While not the same nightmare B/Cs claims could still be very complex. I'd also modify his statement by observing from experience that typical two unit connected 'ownership flat' properties on a simple cross lease were usually reasonably straight forward provided both were insured. Big blocks of more than two were the gnarly ones.
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