Running a business in residential strata & the impact on insurance
Look Up Strata
By Ann Farrugia
06 October 2016
We received this question about running a home business in strata, and
how this can affect the owners corporation’s insurance. The following
response has been provided by Ann Farrugia, National Client
Relationship Manager – Strata, Whitbread Insurance Brokers.
“Our body corporate has residential insurance to cover our eight units.
This includes public liability insurance. We have an owner/occupier who
is running a home business in strata. She runs her Pilates business
from her unit.
In speaking with the insurer, they advised that if a client of the
business was injured on site we would not be covered unless the
insurance was upgraded to commercial insurance.
To my knowledge, the owner setup her business without notifying the
body corporate management group and has run it for some years from her
unit. To move to commercial insurance will mean an increase in the
Can you advise if the business owner can be charged the difference
between residential and commercial insurance costs or if the business
can be stopped from running out of the unit putting the other owners at
There are several important factors to address in relation to the insurance:
Duty of Disclosure
Before entering into a contract of general insurance with an insurer,
the Owners Corporation (OC) has a duty under the Insurance Contracts
Act 1984, to disclose to the insurer every matter that they know, or
could reasonably be expected to know, is relevant to the insurer’s
decision whether to accept the risk of the insurance and, if so, on
what terms. The Owners Corporation has the same duty to disclose those
matters to the insurer before they renew, extend, vary or reinstate a
contract of general insurance.
Essentially, the OC has a duty to disclose to the insurer anything that
may increase or change the risk at the property, for example, knowledge
that an owner or tenant is running a business from their unit. If
changes like these are not disclosed on the insurance schedule, and a
claim is made, it is very likely the insurer would deny the claim.
Denial in such instances could be based on non-disclosure, particularly
if risks like this are outside the insurer’s underwriting guidelines.
The insurer could even go so far as to cancel the policy and refund the
insurance premium paid. The OC would then be exposed to the costs and
outcomes associated with a claim.
However, if the insurer is informed of a business being operated from a
unit, and they have the opportunity to amend the policy according to
their risk appetite and underwriting guidelines, a claim would more
than likely be covered by the insurance – subject to the terms and
conditions of the policy wording.
Non-disclosure extends beyond strata insurance
It is worth noting that the issue of non-disclosure applies to all
policies in place at a Strata property. Therefore, it is important for
all insurers to be notified of any changes in circumstances within a
In this instance, in addition to the Strata Insurance, it is important
for the Landlord and / or the Contents Insurer to know about any
business activity taking place within the insured unit. This will help
to ensure that insurance cover is maintained under the relevant policy.
Often, insurers may be happy to note on the Landlords / Contents
Insurance policy schedule that a business is operating within the unit,
but again it is up to the individual insurer as to whether they are
able to cover it. If the insurer is not satisfied with the change in
circumstances, the owner in question may require a Business Insurance
Residential or commercial strata insurance?
It is the insurer’s discretion as to whether they decide to keep the
policy as a Residential Strata Policy or change it to a Commercial
Each Strata Insurer has specific underwriting guidelines to determine
if the policy would be rated as a Residential or Commercial Strata
policy. One of the major factors taken into consideration by insurers,
is the percentage of commercial floor space versus percentage of
residential floor space.
Based on specific circumstances assessed on a case by case basis,
insurers may still be content to rate the property as a Residential
risk, but this does not appear to be the case in this specific instance.
Potential premium increase
Whether the premium increases or not is up to the individual insurer.
It is important to note however that if the policy does change from a
Residential Strata policy to a Commercial Strata policy, this will
almost definitely attract an increase in the insurance premium.
So, who absorbs the cost…? In general, the Strata Insurance premium is
shared by all of the units based on the lot liabilities outlined on the
plan of sub division. As such, any premium increase should be shared
according to the plan of subdivision.
Setting up a business
Prior to conducting any business activities within a Strata unit, we
recommend discussing the matter with the Strata Manager. The Strata
Manager will then likely review and refer this matter on to the OC
Stopping a resident from carrying out business activities in their unit
This is a matter for the Strata Manager / OC Committee to handle. Legal advice may also help provide guidance here.
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