Insurers have recently focussed on schemes which have tobacconists within them (or other businesses selling tobacco related products).
Where there is a tobacconist (or similar business) operating from within the scheme, this has led to:
- insurance renewals being refused; or
- if insurance is offered, increased premium costs and excesses for fire events.
Due to the way in which insurance premiums are apportioned for a body corporate, all lot owners in the scheme are then required, in the first instance, to bear the increased insurance premium costs – which can be 2 or 3 times more than if the tobacconist was not operating within the scheme.
Insurance premium costs
The starting point for insurance premium cost responsibility is that the costs of the body corporate’s insurance premium is funded by lot owners in shares proportionate to their:
- interest schedule lot entitlements – for lots created in a building format plan; or
- reinstatement cost – for lots created in a standard format plan (assuming the body corporate is required to insure such buildings).
Adjustment of insurance premium costs
However, there is a mechanism in the regulation module which allows the body corporate to adjust these initial lot owner insurance contributions in a way in which fairly reflects:
the proportion of the total risks covered by the policy attributable to activities carried on, or proposed to be carried on, on the owner’s lot
Accordingly, the Body Corporate can recover the increased insurance costs as a result of a tobacconist operating within the scheme from the owner of the lot where the tobacconist is located – even if the tobacconist is a tenant.
Linking the increased insurance costs to the existence of the tobacconist (and the amount of the increase) would typically require a statement or calculation provided by the insurer or insurance broker.
Tenancy concerns
There is no ability for the body corporate to recover the costs from the occupier. However, usually the commercial lease between the owner and the tobacconist tenant allows for the owner to seek recovery of the increased insurance costs from the tobacconist or for the lease to be terminated – which may make more commercial sense than paying the insurance increase.
Other considerations
Although there is a mechanism for cost recovery from the owner, it does not always address the fundamental issue of the increased costs and often requires recovery steps to be undertaken against the owner (who does not always readily or easily agree to bear such increased insurance costs).
Accordingly, we often recommend a by-law which regulates the use of a lot by tobacconists (or similar businesses) to better prevent the issue from existing and give the committee further control over the use of commercial lots in the scheme for the purposes of preserving its insurance requirements.
We have assisted many bodies corporate in recovering increased insurance costs from owners and implementing by-laws to help avoid the issue.
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