Buying a Commercial Strata Property? A New Policy Isn't the First Question

New owners of a commercial strata property often assume they need to arrange their own building cover on settlement. In most schemes, that’s already being handled by the owners corporation. It carries on regardless of who owns an individual lot. The real first step on buying into a strata scheme is a health check on the existing policy, not a fresh one.

Do I actually need a new insurance policy when I buy into a commercial strata scheme?

Generally not for the building itself. In a genuine strata scheme, the owners corporation is responsible for arranging and maintaining building insurance on behalf of every lot owner. That cover continues regardless of who owns an individual lot at any given time. A new owner isn’t starting from zero. What’s actually worth doing on purchase is checking that existing policy properly, not assuming a new one needs to be arranged.

Why is this different to buying a non-strata commercial property?

On a Torrens title, non-strata commercial property, there’s no owners corporation standing behind the building. The individual owner is the one who needs to arrange building insurance from scratch, since nobody else is doing it on their behalf. That’s the reverse of the strata situation. A buyer moving from a standalone commercial property into strata or the other way around is exactly where this gets confused, since the two structures put the responsibility in different hands entirely.

What should a new strata owner actually check instead of buying new cover?

A proper health check on the existing owners corporation policy, not a purchase decision. Sum insured against current rebuild cost, office bearers liability for the committee and the building’s actual tenant mix are the obvious starting points. All three can drift out of date over time without any individual lot owner noticing, right up until a claim exposes the gap. They’re not the whole picture though. A few other parts are worth a quick mention too: common area contents, shared plant and machinery breakdown (for lifts and air conditioning), loss of rent and liability. Working through what a specific policy actually includes is exactly the kind of review worth having a broker do.

Does the owners corporation policy cover everything a new owner actually needs?

No, not entirely. This is worth being clear about. It covers the building structure and common property. It doesn’t cover the lot owner’s own business operations or fit-out inside their lot. It doesn’t cover the specific loss of rent if that owner’s own tenant stops paying either. Those sit as separate exposures the individual owner may still want covered themselves, alongside the scheme’s building policy rather than instead of checking it.

What happens if the owners corporation’s policy turns out to be inadequate?

This affects the whole scheme, not just the buyer who happened to notice it. Underinsurance on a strata building’s sum insured is a shortfall shared by every lot owner if a major claim occurs, since the building is insured collectively rather than lot by lot. A gap found during due diligence is worth raising with the committee or strata manager directly. It isn’t something one new owner can quietly fix on their own lot.

Key Takeaways

The information in this article is general in nature and does not constitute legal, financial or insurance advice. Please speak with a qualified adviser about your specific circumstances.