27 Feb Defect Remediation & Maintenance in Strata

Strata committees often ask why the presence of outstanding defects or maintenance issues affects the number of insurers that are willing to provide a quote.

When we discuss defects, we are referring to an element of the building with a design flaw, poor workmanship, or inferior materials.

Lack of maintenance commonly refers to when an event could have been avoided through regular building or service maintenance, or by replacing components over time.

Our experience is that insurers will generally apply a broader interpretation of the word “defect” to extend to any outstanding building repair or maintenance works.

As part of an insurer’s consideration to insure a property, they will review all reports provided to ascertain the condition of the property and the associated risks.

Insurers are reluctant to insure properties with outstanding defects/maintenance issues because of the increased risk of damage, for example:

• Increased Claims Costs: Unaddressed defect rectification or maintenance problems can result in damage that causes a costly insurance claim. In addition, while the rectification of the defect is unlikely to be covered by the policy, there are increased costs for an insurer to identify the defect and demonstrate that the defect repair is not covered under the policy.
• Increased Risk of Injury: Maintenance issues often pose safety risks. For example, a cracked foundation or unstable structure might increase the likelihood of trips or falls and expose the Strata Plan to Public Liability claims for injuries.
• Moral Hazard: If property owners neglect maintenance, it can be seen as an indicator that they may not take proper care of the property going forward. Insurance do not like to insure poorly maintained properties.

What can strata committees do to improve the likelihood of receiving a greater number of competitive insurance quotes?

To enhance their property’s appeal strata committees should proactively demonstrate their commitment to both defect rectification and ongoing maintenance. Specifically, when addressing defect rectification, committees should provide insurers with:

• A suitably qualified expert report
• A full scope of works and a timeline for completion.
• Notes on any meetings called and special levies raised.
• Details of any legal proceedings. It should be noted that he strata committee’s decision to pursue legal action against a builder or developer, does not negate their responsibility to ensure the property is safe to live in. Given that legal action is quite often a lengthy process, the OC must still undertake necessary remedial works to mitigate the risk of legal action that may arise from their own failure to address known defects.

A culture of preventative maintenance shows a commitment to long-term asset preservation and risk mitigation. This can include:

• Regular cleaning of gutters and valleys to prevent water ingress.
• Roof inspections to check for cracked roof tiles and loose flashings.
• Relaying bricks that have been lifted on common areas/footpaths
• Pressure testing of pipes to prevent burst pipes and water damage
• Fire equipment service testing
• Service agreements in place for lifts and machinery

Don’t wait for an insurer to decline before acting on defect rectification or maintenance issues. Once an issue is detected, obtain and follow expert advice to ensure prompt and effective remediation. This approach not only prevents further damage and potential legal action but also strengthens your property’s appeal to insurers.

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