Owners Corporation Reinstatement and Replacement Insurance – What Should it Cover?
Owners Corporation Legal Case Update.
The Owners Corporation Act 2006 (VIC) (‘OC Act’) provides that an Owners Corporation must take out reinstatement and replacement insurance for all buildings on the common property. The definition of building in the OC Act has been expanded to include “any improvements and fixtures forming part of the building”. This has led to some confusion regarding the extent of an Owners Corporation’s insurance obligations and thus the duty of the managing agent.
However, a recent case in VCAT has helped define the scope of these obligations, as a lot owner was successful in bringing an action against the managing agent for failing to insure the lot’s fixtures. The proceedings commenced as the compressor of an air-conditioning unit attached to the relevant lot, which was not covered by the Owners Corporation’s insurance policy, broke down. The lot owner was successful in arguing that the compressor was a fixture of the property as it was present when the lot was purchased and was not intended to be kept by the lot owner upon sale of the property. Furthermore, it was irrelevant that the compressor could be detached because the detachment would be a long and arduous procedure. Therefore, it was decided the compressor and the air-conditioning unit should have been covered by insurance.
This finding raised questions as to whether the managing agent breached its duty to exercise due care and diligence in the performance of its functions. There was evidence to suggest the manager knew the Owners Corporation did not have mechanical breakdown insurance and did not urgently obtain a quote or raise the issue with the Owners Corporation at the next Annual General Meeting. The tribunal held that a reasonable manager, with similar knowledge and experience as the current manager, should have addressed these issues urgently. Accordingly the manager was considered to have breached its obligation to exercise due care and diligence.
Case Reference: M.R.O Nominees Pty Ltd v Network Pacific Real Estate Pty Ltd (Owners Corporations) [2013] VCAT 1492.
Any further questions, please contact a member of our Owners Corporation team.
