Of recent there has been plenty of chatter in the media surrounding Strata Corporations or Strata’s across Canada, especially in BC where we have seen upwards of 40% increase in rates or 50% in the Vancouver area. It’s important to understand some common terms to fully comprehend what an insurance policy covers in respect to a Strata building or unit and the importance of those policies.
What is a Strata? In British Columbia, the word condo and strata are one in the same and often used interchangeably depending on whom you speak too. Often a strata unit is divided by walls, ceilings and floors within the same building as seen in an apartment building with common hallways, elevators, stairwells and entrance spaces. In a townhouse complex, strata units are separated by the walls and could be attached to one or more neighbors or none at all as often seen in a ‘bareland strata’ where owners own the building and specific set of land space with a common interest in the roadways and amenity spaces.
What is common property (CP), how is it different from limited CP (LCP)? Any area that is available for use by all strata unit owners is considered common property Examples of CP: entrance lobby, elevators, gardens, swimming pool and other recreational facilities. In some strata developments, certain areas are for the use of individual owners and are considered LCP. Examples of LCP: balcony or patio spaces that can only be accessed by that individual owner, the interior space of the garage etc.
The Strata Property Act legislates that the Strata Corporations are responsible for common property and strata unit owners are responsible for their individual units. For this reason, the insurance policy for strata unit owners and strata corporations are separate contracts with their own terms and conditions. The policy must cover the full replacement value of the buildings and fixtures, with increased construction costs and services this has pushed values to rise without any other circumstances.
In the event of a building fire or a visitor becoming injured on the property (fell on snow/ice) insurance would typically provide financial coverage to the Strata Corporation for loss or lawsuit. Condo insurance is more than just a policy guarding personal contents and liability; it represents peace of mind.
So what does the Strata Insurance Policy cover?
- The buildings shown on the strata plan
- Common property such as hallways, stairs, roof, pools, garages, driveways, etc.
- 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, equipment, etc
- Liability of the strata corporation for claims of property damage and bodily injury suffered by others . In BC – Liability insurance must be for a minimum of $2 million
- Optional: earthquake coverage, flood
So why the increase? “Insurers are incurring losses mostly from minor claims (particularly those resulting from water damage) due to poor building maintenance practices and initial construction quality issues,” the interim report from the BC Financial Services Authority said, and added “there is not enough capacity in the strata insurance market to support future expected demand.”
Vice-president of the regulatory agency Frank Chong called it a complex issue with no easy solutions. “We recognize that there is a tremendous amount of pressure exerted as a result of the increase in strata insurance,” Chong said, added the agency gets a lot of questions and complaints from the public. “We believe that obviously that this particular issue will not be going away immediately. There will be continued pressure over the medium term.”
The increase of some of these policies are resulting in the increase of Strata Fee’s from a couple hundred up to a thousand dollars a year. A substantial amount that most owners are not prepared for, especially when some Corporations were completely unaware that there was trouble brewing.
In a press release, opposition critic for housing Todd Stone said the problem is getting worse. “The government cannot delay action on this issue any longer,” Stone said. “It is time to see the government take real steps to improve this situation and provide much-needed relief for condo and townhome owners around the province.”
In February, Stone introduced a private members bill proposing changes to the Strata Property Act, including a measure to clarify what issues a strata or owner are responsible for. The BC Financial Services Authority said it will be meeting with stakeholders over the next few months to gather input. A final report is expected sometime in the fall.
At this point, its all caution ahead for Home Buyer’s when considering purchasing a Strata unit. Until, the Province returns with their findings in the fall no one can anticipate what the short and long term outlook will be. With over 10,000 corporations in BC, failure to do anything will put a lot of pressure on the housing market and individual unit owners which will overflow onto the governments lap.