Strata building and unit insurance

Condo owners need two insurance policies: one for the common property and one for their unit and contents

The strata plan

The building policy
A word about earthquake coverage
Your unit coverage
Building deductible coverage
Additional coverages for unit owners
Before you buy a strata unit

People are attracted to apartments, townhomes and other strata properties because the overall cost and maintenance burden is lower per unit owner. In fact, British Columbia currently has about 490,000 strata lots in 29,000 strata corporations, housing more than one million (estimated) residents or almost 25% of the province's 4.6 million residents.  

In addition to their own unit, strata property owners own a proportionate share of the common property, which includes grounds, parking area, exterior walls, roof, hallways, amenity rooms and so on. Common property areas that are used exclusively by owners - balconies, for example - are known as limited common property. In many respects, strata properties are considered commercial buildings because they usually have commercial-grade systems for electricity, plumbing, heating/ventilation and elevators.

B.C.'s Strata Property Act sets out how strata owners are to manage their properties for the common good of everyone, and as part-owners of an asset that is often worth several million dollars, it's just makes sense for strata owners to take an active interest in how their building is cared for. 

The strata plan
The owners of the strata lots in the strata plan are members of the strata corporation under the name "The Owners, Strata Plan -" which is filed with the B.C. Land Title Office. The owners elect a strata council who manage and maintain the strata's common property, ensure that fellow owners comply with the bylaws and rules, and hold owners' meetings to review the strata's finances and make other major decisions. The act stipulates that the strata corporation must repair and maintain common property and common assets. In fact, recent amendments to the Strata Property Act now require strata corporations with five or more units to, every three years, update a long-range plan to ensure sufficient financial reserves for maintenance and renewal of common assets.

The building policy
As commercial buildings, strata properties have commercial insurance policies, and the Strata Property Act sets out minimum requirements for the building policy. It also stipulates that the strata corporation must review annually the adequacy of its insurance, and report on the coverage at each annual general meeting. In addition, strata owners should have insurance policies for their own units.

The strata corporation's building policy typically covers:

  • The buildings shown on the strata plan
  • Common property
  • Fixtures built or installed as part of the original construction such as floor and wall coverings, electrical and plumbing fixtures
  • Strata assets such as furniture and equipment
  • Liability of the strata corporation for claims of property damage and bodily injury suffered by others

A word about earthquake coverage
An important additional coverage available to strata corporations is earthquake insurance. Let's consider a scenario in which a minor tremor causes sufficient structural damage to a 50-unit concrete high-rise, appraised at $15 million, such that all the windows need to be replaced and the concrete repaired at a cost of $5 million.

Without earthquake coverage: Each of the 50 owners would face a special assessment of $100,000 on average.

With earthquake coverage: Earthquake deductibles are in the range of 10% to 15% of the appraised value of the building. For example, on a building valued at $15 million, a 10% earthquake deductible would be $1.5 million, or $30,000, on average for each of the 50 owners. Owners can purchase coverage as part of their unit policies to cover their share of the earthquake deductible (see the next section). In this scenario, their unit policies would cover their share of the earthquake deductible.

Your unit coverage
The strata unit policy typically covers:

  • The owner's personal property such as clothing, household items and furniture
  • Upgrades to the unit (for example, custom hardwood flooring, kitchen and bathroom upgrades)
  • Additional living expenses over and above the normal cost of living in the event of an insured loss
  • Personal liability for any bodily injury or property damage unintentionally caused to others

Building deductible coverage
Deductible assessment coverage is an additional coverage that has become increasingly important in light of the increasing cost and frequency of water-damage claims. For example, if the building is damaged due to a water leak, the strata corporation would generally file a water damage claim with its own insurance company.

Section 158 of the Strata Property Act states that the insurance deductible in respect of a claim is a common expense, but the strata corporation may sue an owner in order to recover the deductible portion of an insurance claim if the owner is responsible for the loss or damage that gave rise to the claim. Two landmark court decisions in B.C. in 2007 determined that the strata corporation need not prove negligence in order to determine owners' responsibility. A strata corporation may sue a strata lot owner to recover the insurance deductible even though the owner was not negligent and merely caused or brought about the events that resulted in the damage.

To remove ambiguity and potentially save on future legal expenses, some strata corporations have passed bylaws that clarify that owners are strictly liable for damage to common property that originates in their units. It is therefore important that all strata owners review the building policy and advise their insurance broker of the building deductible amounts to ensure their unit policy includes sufficient coverage for building deductibles. This information is included in the report that strata corporations are required to provide to owners at each annual general meeting. Some strata buildings with a high frequency of water damage claims are now facing water-damage deductibles of $50,000 to $100,000.

Additional coverages for unit owners
Other additional coverages available to strata unit owners that are well worth considering:

  • Increased unit improvements and betterments coverage insures upgrades to the unit above the standard limits of the unit owner's policy.
  • Unit additional protection coverage insures the original strata unit itself (for ex., walls, ceilings, colors,) so that the owner is protected in the event the strata corporation's insurance is not sufficient.
  • Loss assessment coverage typically pays the owner's share to cover major property and liability losses on common property that may exceed the strata corporation's policy limits.

Before you buy a strata unit
The Strata Property Act, in section 35, lists the records that the strata corporation must maintain and which must be made available to owners upon request. Sellers of condo units can make these records available to potential buyers. It is standard and prudent due diligence for buyers and their agents to review the minutes of past council meetings, any relevant engineer's reports or reserve-fund studies, and declarations for insurance policies and building warranties in effect.

When buying insurance for a recently purchased condo unit, provide your insurance broker with the declaration form for the building policy so that he or she can tailor coverage to your needs. Determine a valuation figure for your contents and unit upgrades.

Strata ownership is often marketed as "carefree living" and while that is true in many respects (no more lawns to mow!), it brings with it its own complexities and responsibilities. For more information about insurance for your strata property, contact your insurance broker.

Additional resources for Homeowners and Tenants