Have you recently purchased a condominium? Or perhaps you have owned and resided in a condominium for years? Or maybe you own the condominium, but you rent it out to a tenant? Whatever your personal situation may be, it is important that you protect your investment. Imagine that your hot water heater in your condominium Unit leaks and causes damage to your Unit, the Unit below yours, and the Common Area of the building. Who is responsible for the cost of repairing the damage? While not all associations treat these scenarios the same, we are seeing more and more scenarios similar to this play out and finding that many Unit owners are not financially prepared to handle such an event.
Association’s Insurance Policy
Most condominium associations are obligated to carry primary insurance that will cover repairs to the Common Area of the building. However, many associations have adopted provisions within their Declaration of Covenants, Conditions, and Restrictions (“Declaration” or “CCRs”) that shift the cost of any uninsured amounts of damage caused by a single Unit to that Unit owner. That means that if your hot water heater leak caused damage to the condominium’s Common Area, the association’s insurance should cover the cost of repair for the amount of money necessary to complete the repairs over the deductible amount. Under this type of Declaration provision, the association will shift the cost of the insurance deductible back to you, as the leak from your Unit that caused the damage. We are seeing these deductibles running $10,000 and sometimes even more. It is important for you to be aware of your association’s insurance deductible and obtain your own homeowners insurance policy to cover the association’s master policy deductible. Your association may increase its deductible amounts without notifying you of doing so. As such, make sure you stay informed of any changes to the association’s insurance policy by attending Board Meetings and Annual Meetings, by communicating with Board members, and by regularly obtaining association documents that will help guide your decision-making.
Homeowners Insurance Policy
Whether or not your association requires that you carry a homeowners insurance policy, it is always a good idea to do so. Remember, the association will carry primary insurance on the condominium’s Common Elements, but its policy will not include coverage for the interior of your Unit or for your personal possessions. Talk to an insurance provider that is familiar with condominium Unit policies, which are often referred to as “HO6 policies”. Annually, you should follow up with the association, get a copy of it’s insurance declarations, then speak to your insurance provider to make sure you are carrying a policy that covers the association’s deductible amounts if you become liable to pay for them, provides you with the appropriate level of coverage for any damage to the Common Area and/or other Units emanating from your Unit, and provides you with the appropriate level of coverage for any damage to your Unit and your personal possessions. If you have owned your condominium Unit for a number of years and still carry the same insurance policy you obtained when you first purchased your Unit, it is likely time to update your policy.
If you rent your condominium Unit to a tenant, make sure that the tenant is required to purchase a renter’s insurance policy and provides you with confirmation that they have made that purchase. Generally, requiring a copy of the Declaration page for that policy is the way to handle such a confirmation of purchase. As renters insurance will typically only cover the renter’s personal possessions, you still need to maintain your own homeowner’s insurance policy, as well.
The bottom line, as with many things in life, is to be prepared for the worst and hope for the best! Purchasing the right insurance policies with coverage specific to your circumstances will help you buffer against what could otherwise become a serious financial burden.