Brand EditorialEPM

Renovating and insurance cover

With COVID-19 resulting in higher rental vacancies in some states and the announcement of the HomeBuilder program, landlords may be thinking about renovating their investment property.

But before they get started there are insurance matters to think about, cautions EBM RentCover Managing Director Sharon Fox-Slater.

Aussies love property and they love renovating too, if the number of shows on the television is anything to go by: The Block, House Rules, Buying Blind, Selling Houses Australia, Fixer Upper, Love It or List It, Grand Designs.

And it isn’t just owner-occupiers who get bitten by the renovation bug – there are plenty of landlords who will be booking in builders this spring.

But before a landlord starts overhauling their rental they need to think about insurance cover.

Importantly, when an investment property is being renovated, it is unlikely that any landlord insurance cover will apply.

Landlord insurance is designed to protect the landlord against a range of risks when leasing out their property.

As such, one usual condition of cover is that the property is occupied (rentals are generally untenanted when being renovated).

Insurance is all about risk.

The owner’s insurance risk begins with how secure the property is.

When properties are undergoing renovation, the risk of loss, damage or injury significantly increases.

One of the main reasons insurers are reluctant to provide cover during renovations is that the property is often unsecured for long periods and building sites can be magnets for thieves and vandals.

So if your client has a landlord insurance policy, they need to let the provider know that renovation works are taking place and check if cover is available and in what circumstances (this is also the case for any building cover the landlord may have on the property).

Depending on the owner’s insurance policy, they may be covered for renovation.

This is more likely if the nature of the renovation work is minor (e.g. the home is not being substantially changed or the structure is not being altered), for example the bathroom is being fixed or the kitchen re-fitted.

In general, retaining cover on an existing policy may be possible if the renovations or alterations are not making the property less secure (e.g. more vulnerable to theft and structural damage).

Generally, once the cost of the construction, renovation or alterations reaches a certain value the home will be categorised as a building site and any existing building cover will be void (many policies have a blanket exclusion).

And once the home is considered a building site, any legal liability cover the owner has, which protects them if someone is injured on their property, will be compromised.

To ensure insurance is maintained, the owner can check with their insurer to see if they can get cover while the renovations are undertaken.

This would generally involve an additional premium.

Regardless of the size of the renovation, most insurers will have exclusions for water damage during or as a result of any renovation job.

If an existing insurer is unable to provide cover, the owner may need to look into specialist renovation insurance.

Alternatively, the owner could work with the builders’ insurer to arrange an extension of the Construction Works policy.

This brings us to the insurance required when renovations take place. When you consider the potential for fire, flooding and theft while a property undergoes renovation, extension or alteration, it’s imperative to get the insurance coverage right.

Property owners and builders are often confused about who is responsible for insurance while a property is being renovated.

As a basic guide, there are three main types of insurance that need to be considered:

  • Construction Works
    Cover:
    Comprehensive cover for damage to the works in progress. This only covers new works. Existing/other property on the site is not covered unless the policy is specifically extended to do so (the builders’ insurer may be willing to do this if the owner pays an additional premium).
    Responsibility: Builder
  • Public Liability
    Cover: Legal liability for third party personal injury or property damage. Frequently both owners and builders mistakenly assume that the builder’s public liability will be sufficient to protect the owner’s property, but that is not the case (not all damage will be determined to be the liability of the builder). If the owner is not using a builder and instead contracting tradies, they should ask to sight the tradie’s certificate of currency for public liability cover.
    Responsibility: Builder/tradie and owner
  • Owner’s property
    Cover: Insurance for existing structures (house, outbuildings etc.) and home contents.
    Responsibility: Owner (unless it is stipulated in the building contract that the builder must arrange this cover).

If the owner is the builder, DIY renovator or coordinating the work as project manager, then they may need to take out builders’ insurance (including public liability) in addition to home and contents cover.

Importantly, owners need to check their insurance policy to see where they stand while their property is being renovated.

The builders’ insurance will not cover the owners’ property, except under specific circumstances (such as loss due to proven negligence).

Too late, many owners realise that there is no cover on the property. It is also important for the owner to be aware of the builders’ policy in terms of coverage, timeframes and in instances where works are abandoned.

Once renovations are finished, the owner should get in touch with their landlord (or building) insurance provider to advise the works are complete and the premises are back on the rental market so landlord cover can be re-instated.

It is also important that the owner discusses the sum insured for their policy to ensure that they continue to have an adequate level of cover including any improvements and any increase in the property’s value.

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