Condo insurance: new obligations
Condominium buildings – an increasingly popular choice of housing – are growing like mushrooms. Not only are there new buildings, but old buildings (factories, churches, triplexes, etc.) are being converted into condominiums. Unfortunately, when we look at this housing segment as a whole, we see that many condo buildings are in poor shape. Sometimes poorly built but often badly maintained, they contribute to the rise in insurance claims.
For the property and casualty insurance industry, it became essential that the regulations governing this type of housing be revised to better protect co-owners and their assets. Since December 13, 2018, significant changes have been made to the Civil Code of Québec regarding the insurance for co-owners. These changes affect the obligations of co-ownership syndicates, co-owners and insurers.
What are the main impacts?
- Syndicate’s insufficiency of insurance and absence of insurance and its deductible – which must be reasonable – are now considered as common expenses.
- These common expenses must be distributed among all the co-owners, even those who have no damage in their unit. This is what we call the apportionment or distribution.
- Improvements in co-owners’ units will be determined based on the description of the private portions established by the syndicate.
- The syndicate has a right of recourse against an at-fault co-owner for the insufficiency or absence of insurance and for its deductible.
Obligations of insurers
To take these changes into account, insurers had to modify their condo insurance contracts. You may have already seen the changes if you have received your insurance renewal policy.
The Extension of Coverage – Loss Assessment covers the apportionment that the co-owner will receive from the co-ownership syndicate in the event of insufficiency or absence of insurance of the syndicate’s policy, up to the limit indicated in the contract.
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Obligations of co-ownership syndicate
Since the changes to the Civil Code of Québec came into effect, your co-ownership syndicate has four important new obligations:
- Take care of all repairs in the building in the event of damages, including in private units. Damage to improvements and personal property of co-owners is excluded from this liability.
- Have a description of the private portions of a “reference unit”:
a) If your co-ownership syndicate was constituted on or after June 13, 2018, this obligation is already in effect.
b) If your co-ownership syndicate was constituted before June 13, 2018, it has until June 13, 2020 to provide this description, which must be safeguarded in the Register of co-ownership.
The description of the private portions must be sufficiently precise to allow any improvement made by co-owners to be identified. Everything not included in this description will be considered an improvement made to your unit.
- Establish a self-insurance fund to cover the insurance deductible – which must be reasonable – in the event of a claim or to repair damage if it is less than the deductible. Your syndicate will have 2 years to raise the necessary funds. The provisions concerning this fund will enter into force 24 months after the publication of the regulation, which will be published no later than June 13, 2020.
This fund must be separate from the reserve fund and the operating fund of the co-ownership syndicate.During the first year, the co-owners will have to inject half or more of the amount of the deductible into this fund and the following year, they will have to add the remaining amount to equal this deductible.
In the event of a claim, the self-insurance fund will have to be replenished in the same way.
If you live in a condominium with 20 units and the deductible under the syndicate's insurance policy is $10,000, the co-owners will have to contribute $5,000 in the first year and another $5,000 in the second year to the self-insurance fund. For each co-owner, this represents an amount of $500 to be paid over two years.This fund must be separate from the reserve fund and the operating fund of the co-ownership syndicate.
- Have the building inspected by a member of the Order of Chartered Appraisers of Quebec every 5 years to determine the reconstruction value, which will determine the amount to be insured. The regulations concerning this point will come into force by June 13, 2022.
Obligations of co-owners
As a co-owner, you have the responsibility to purchase a condo insurance policy which covers:
- Your personal property.
- Improvements to your unit, namely anything that is not mentioned in the standard unit description provided by the co-ownership syndicate. For example, upgrading your cabinetry, changing the floor covering or adding a heat pump, etc.
- Distribution or apportionment.
- Civil liability covering damage you could cause to others, including damage to your own unit that affects the “building” portion covered by the co-ownership syndicate’s insurance. The minimum mandatory amount will be determined by government regulation by December 13, 2020.
You must inform your broker of any improvements you make to your unit. This way your broker can help you evaluate whether insurance the coverage amount for your unit’s improvements is enough.
In addition, given the recent changes, we suggest that you insure yourself against all risks that you may be exposed to when there is an apportionment done by the co-ownership syndicate to all its co-owners based on their share. For example, if your unit is located on the top floor, you may be exposed to a distribution during a sewer backup. If you have this protection your insurer can compensate you for this distribution, otherwise you will have to pay the amount of this distribution to the syndicate out of your own pocket.
If you’re not sure about the risks you could be exposed to, contact your broker for advice.
Frequently asked questions
What if the damage is not covered by the syndicate’s policy? (Absence of insurance)
What if the amount of damage is less than the amount of the syndicate’s deductible?
And if the insurance amount of the syndicate’s policy is insufficient? (Insufficiency of insurance)
Does the syndicate have the right not to make a claim with its insurer?
Is it different if a co-owner is at-fault?
Prevention, your best ally
Even if the regulations surrounding the self-insurance fund have not yet come into force, it would be wise for co-ownership syndicates to start setting up this fund today in order to reduce the burden on each co-owner. Talk about it at the next co-owners’ general meeting. Also, make sure that the deductible under the condominium syndicate's insurance policy is reasonable. The insurance premium will be higher, but at least, in the event of a claim, the amount you will have to pay for the distribution of the deductible will weigh less on each individual co-owner.
The same applies to building inspection. Why wait until a by-law goes into effect to ensure that your building is in good condition. You have invested a lot of money in the purchase of your condo unit, so it is to your advantage to ensure that the co-ownership syndicate arranges for the building to be inspected on a regular basis and addresses any problems as soon as possible in order to prevent avoidable damage. In good practice, a co-ownership syndicate should maintain a maintenance logbook. In addition to being less expensive to insure, a well-maintained building could also avoid so many problems and inconveniences for everyone.
Finally, did you know that the majority of condominium insurance claims are caused by water damage affecting several units? Why not consider installing an intelligent system that detects water leaks and closes the water supply line in each unit? There are also small, inexpensive water leak detectors that you can install yourself. Discuss it with the co-owners at a future meeting. The investment may be worth it.
Infoassurance – Insuring your condo: 2 policies required
CAA Québec – The right insurance for your condo: what you need to know
Insurance Bureau of Canada – Co-ownership
Insurance Bureau of Canada – Settling divided co-ownership claims
Chianetta Avocats – Adoption du projet de loi 141 (French only)
Radio-Canada – Assurance condo : de nouveaux frais pour les copropriétaires (French only)
Radio-Canada – Des frais additionnels dénoncés par les propriétaires de condos (French only)
CHAD – Copropriété : modifications législative en vigueur le 13 décembre 2018 (French only)
Journal de l’assurance, July 2019 (French only)
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