The Landlord's Guide To
Part 7 – Landlord's
Summer is the season for bushfires, floods and cyclones.
All year round, house fires, storms and tempests, broken
pipes and bad tenants cause damage to rental properties.
Visitors twist their ankles when they trip on stairs and
slip on a path, fracture limbs when decks collapse and
receive lacerations when glass doors break.
Landlord Insurance covers: Building Insurance for damage
to rental properties; Public Liability Insurance for
personal injury to visitors; Malicious Damage by bad tenants
and Loss of Rent.
This article looks at Landlord Insurance for property
Landlord Building Insurance –
What physical items does
landlord building insurance cover?
Landlord Building insurance covers the building
structure – walls, roofs, ceilings, floors, windows,
doors, decks, sheds, pools, gates, fences, dividing walls,
landscaped and paved areas. For houses, the landlord takes
out the insurance. For strata property, the Owners
Corporation / Body Corporate takes out Building Insurance
because it owns the building structure (the common
Landlord’s Contents Insurance is taken out by landlords
to cover the fittings and fixtures inside the building for
both houses and strata units/townhouses – kitchen cupboards,
bathroom fittings, light fittings, blinds and curtains,
floor coverings. The tenant’s goods are not covered.
Is insuring the building for
less than it is worth a smart way to save money?
Insuring the building for less than building value will
save money on insurance premiums. But how smart is
underinsuring the building?
Illustration: assume the building value is
$300,000 and it is insured for $200,000. If it is a total
loss the insurance company will pay $200,000 and the
building owner will need to fund $100,000 out of their own
pocket to replace the building.
It would be smarter for the owner to pay an extra $300 in
insurance premium and receive the full $300,000 building
What is the building value
for insurance purposes?
Property valuations will often state a building value for
insurance purposes. By law, strata schemes must update
building valuations regularly (at least every 5 years) for
insurance purposes. But homeowners and investors are not
required to do so.
A simple method landlords use to estimate the building
value is to follow the insurer’s guidelines on the cost to
rebuild the home with comparable features and materials.
Insurers might have a home building value calculator on
their website or a cost per square metre of building area
guide for manual calculation. Many insurers include a
consumer price index increase in their renewal notices.
Most Building Insurance policies provide new for old
- replacement cost cover. Some provide indemnity cover,
which is less than new because depreciation and condition
are taken into account. It pays to check! Strata Insurance
policies always cover replacement cost.
What events will landlord
The Insurance Contracts Act, 1984, sets out the events
covered by standard home insurance policies. The events
covered and exclusions in a Standard Landlord Insurance
Events covered: fire or explosion; lightning;
earthquake; theft, burglary or housebreaking (by outsiders);
deliberate or malicious damage (by outsiders); bursting
pipes or water overflowing (but not pipe repair); riot or
civil commotion; impact damage by vehicles, aircraft, boats,
rockets or satellites (by outsiders); falling trees or
television aerials; storm, tempest, flood.
Exclusions: depreciation; wear and tear; rust or
corrosion; the action of insects or vermin; war or weaponry;
business use; tree lopping; if the home is unoccupied for 60
days; damage to retaining walls, gates and fences (if by
storm and tempest); accidental damage to glass or porcelain
Landlord Insurance - Common
areas of dispute
The Financial Ombudsman Service (FOS) is funded by the
Insurance Industry in Australia to help resolve disputes
between insurer and insured. If the insurer denies liability
or the insured person rejects the insurer’s offer as
insufficient to cover the damage, then the insured person
may request FOS to determine the dispute. Both the insurer
and the insured are entitled to make written submissions to
FOS. The determination is made on the papers, without a
FOS publishes its determinations on its website. These
are useful guides to common disputes in Landlord Insurance.
These areas of dispute recur in those determinations.
What reasons do insurers use
to deny claims for fire damage?
House fires result in potentially large claims for
building repairs or rebuilding.
Even smoke and fire damage to the inside of a home unit
can be expensive to repair – in one case, the insurer paid
$31,900 for cleaning and repairs to the unit, and $3,045 for
10 weeks loss of rent, until the unit was ready for the
tenant to move back in, for a fire which originated from a
faulty light in the fish tank.
Because of the high cost, insurers will try to deny
claims for fire damage more forcefully than other, smaller
claims. Insurance companies use these reasons to deny claims
for fire damage:
- Reason 1 – The fire was caused by vandalism and
arson by an occupant or owner – the insurer must
establish this was the likely cause by expert reports –
speculation about the cause or suggesting dishonest acts
or a fraudulent motive by the owner is not enough.
- Reason 2 – The status of the property had changed
from residential to commercial – the threshold is where
more than 20% of the floor area is used for business
Illustration: if business stock and equipment is
stored in less than 20% of the building, the insurer may
either accept a claim for the whole building destroyed
by the fire, or for that part which is not used for
business purposes. Business stock and equipment stored
are not covered.
- Reason 3 – The building has been unoccupied for more
than 60 days – unless the insurer has agreed, the
coverage is invalidated. Occasional residency can be
sufficient, but a property in the course of renovation,
stripped of a bathroom and kitchen, is treated as
Reason 4 – The building was not structurally sound – a
building in barely habitable condition might be
Illustration: A Council Emergency Order issued
because the property was unhealthy to live in: there
were broken sewer pipes, the smell of raw sewage and
rotten floorboards; the house was not secure against
wind and rain. The tenants vacated. This would amount to
a structurally unsound building and be sufficient reason
for the insurer to deny a claim.
If a property is damaged by fire, the insurer is entitled
to engage a builder to repair or rebuild the home. Or, if
the insurer chooses, it will make a cash settlement.
Was it storm damage or was
the roof already in poor condition?
When it rains or hails, insurance claims are made for
water damage. The water must enter the roof of the
building through a roof opening for a storm and tempest
claim. Insurance companies must be given access to
inspect and to conduct ‘make safe’ repairs as soon as the
Insurance companies will pay claims for water entry where
strong winds (above 40 on the Beaufort scale)
cause the roof opening for instance by lifting or
tearing an iron roof, dislodging roof tiles or a tree branch
falling causing damage the roof. The claims will cover roof
and ceiling repairs, painting, drying or replacing damaged
floor coverings. Pre-existing water damage is not covered.
Insurance companies will not pay claims if the roof was
in poor condition. Illustrations: no flashing between
the main roof and the rear patio roof; loose and rusted
roofing sheets; deteriorated roofing timbers, support walls;
gutter blockage and general wear and tear. Claims will also
be denied if the water entry was as a result of defective
workmanship or design in the construction of the roof.
near property boundaries can damage buildings in two ways:
(1) Tree limbs can fall on buildings and fences. If so,
building insurance will cover the damage. (2) Tree roots can
damage foundations and fences. If so, building insurance
will not cover the damage. In this picture, the tree roots
from a neighbour’s jacaranda tree have been cut at the
boundary and a barrier is to be installed to prevent damage
caused by the tree roots.
Did soil conditions cause
building subsidence or was it leakage from underground
Cornices detach and cracks mysteriously appear in walls
when buildings subside. Building Insurance will cover the
damage if it is caused by water leakage from broken sewer or
burst underground water pipes, or from an earthquake or
tsunami, but not otherwise, such as water escaping from
storm water pipes or drains. The cost of repair or
replacement of the pipes is not covered.
The claim will be reduced or denied if the damage was due
to changed soil conditions – such as moisture content which
causes differential settlement, foundation instability, and
cracks in buildings.
Illustrations where cover is excluded: leaking
stormwater pipes which increase soil moisture content; tree
roots which move walls and affect soil moisture content by
drying the ground; reactive clay soils which expand when it
rains and shrink when it is dry, or change seasonally.
For earthquake damage, insurers will contribute towards
the repair of the new cracks, and the owner will be
responsible for repairs to pre-existing cracks. The damage
must have occurred within 72 hours of the earthquake.
Was it flood water or surface
run-off rainwater that inundated the house?
When buildings are inundated by water, insurers will not
cover flood water damage to properties in flood prone areas
unless flood cover has been taken out (at a higher premium).
Non-flood prone areas are automatically covered – the line
is drawn at a 1 in 100 flood.
What is flood water? It is water that breaks the banks of
a river, or the normal confines of any watercourse, lake,
reservoir, canal or dam.
Insurers will cover inundation by surface run-off
rainwater. A common test is: surface run-off water usually
follows heavy rainfall quickly, while flood water rises over
Was it malicious damage or
simply unhygienic living habits?
Malicious damage caused by tenants is an optional
cover in Landlord Insurance.
The malicious damage must be deliberate or intentional.
It includes vandalism. Some policies require it to be
reported to the police. The FOS determinations give
examples: holes in walls, cupboards and doors, removal of
kitchen cupboard doors, cracked windows, broken tiles,
ripped carpets, spray paint on walls, damaged fly screens,
broken locks, missing dials on stoves. Many policies cap the
Malicious damage cover excludes tenant neglect in
all its forms: untidiness, unclean and unhygienic living
habits, poor housekeeping, wear and tear, rust deterioration
or corrosion, mould, wet or dry rot, dampness, carelessness.
The FOS determinations give examples of tenant neglect as:
missing or damaged light fittings, half-painted walls,
broken tiles, dirty carpets.
Some policies exclude specific damage from malicious
damage cover: rubbish and abandoned goods; scratches, chips
and scuff marks caused by children or pets; stains and water
damaged floor coverings from over-watered pot plants or
splashing from showers, sinks or baths; faulty materials and
If malicious damage not covered by insurance, the
landlord’s recourse is to claim against the rental bond and
to obtain a Tenancy Tribunal order for compensation.
What does rent default cover
that loss of rent does not?
Rent default is an optional cover in Landlord Insurance.
It covers tenants who stop paying, are evicted or leave
before the end of a tenancy agreement. Often a threshold of
four weeks applies (or the rental bond is deducted), there
is a maximum cover of 10, 13 or 16 weeks rent or a dollar
amount, and the excess is deducted.
Loss of rent is part of the standard cover in Landlord
Insurance where a tenant must move out temporarily while
fire or storm and tempest damage is being repaired. Most
policies apply a cap of one year and a total of $52,000.
What are the top Natural
Disasters in Australia since 1945?
Natural disasters result in a deluge of claims for
insurers. This is a list of the most expensive natural
disasters in Australia since 1945:
Tropical Cyclones – Darwin 1974 (Tracy), Northern
Australian 1973 (Madge), Far North Queensland 2005 (Larry) &
Far North Queensland 2011 (Yasi)
Severe storm – Central Coast NSW 2007
Floods – Hunter Valley 1955, Brisbane 1974, South
East Queensland 2010 & 2011
Hailstorms – Brisbane 1985, Sydney 1999
Earthquakes – Meckering WA 1967, Newcastle NSW 1989
Bushfires – Tasmania 1967 (Black Tuesday) Victoria
1983 (Ash Wednesday) & 2009 (Black Sunday), Canberra 2003
The Investor’s Guide to Property Ventures has been
produced by Cordato Partners Lawyers, as part of its
Property Law practice. We can meet all your conveyancing
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