Condo Smarts: Building’s lack of insurance puts buyer in limbo

Dear Tony: We are first-time buyers looking at an older condo in Surrey that is affordable and large enough for our family.

The building just posted a notice, without any explanations, that they could no longer purchase insurance as of Jan. 31. Our sale is due to complete in mid-February.

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We did prequalify for a mortgage, but on condition that sufficient insurance was provided, which we now cannot provide.

We are stuck between the obligation to purchase — we put down a $10,000 deposit that we cannot afford to lose — and our inability to proceed with the purchase, as we have been advised by our bank that it cannot provide a mortgage if the strata corporation cannot purchase insurance and the buyer cannot purchase insurance.

We contacted an insurance provider about homeowner/content insurance and they confirmed that while they can provide insurance for our personal liability and personal contents, including any betterments to the strata lot, they cannot provide insurance for the building.

What are we supposed to do next? We will default in our purchase agreement and lose our deposit and might be sued by the seller.

Marco T.

Your first phone call is to the lawyer acting for your purchase and your agent who negotiated it. You will need to review the terms and conditions of the purchase agreement and consider the options.

One failed completion of a sale could have a domino effect on multiple sales, affecting many families.

Unfortunately, buyers and sellers are caught in the extreme conditions of the insurance market, with serious consequences for the real-estate market as well as the personal liability of strata-property owners and buyers across B.C.

Strata councils should be aware of their personal liability if the insurance is not renewed.

Councils should immediately talk to their managers and lawyers about how to inform the owners and what type of information they immediately require.

Large, high-valued strata corporations, aging communities that have deferred depreciation reports or maintenance, or communities with a history of claims are all exposed to much higher costs, certain types of exclusions for claims, higher deductibles and the risk of limitations or cancellation of insurance.

Insurance is a free-market industry with minimal government regulation.

That’s one of the reasons a competitive industry has worked well for the public to date, but when competition declines and the cost of providing coverage, increased construction and finishing costs, and a rising frequency of claims and construction values all intersect, the result is costly and drastic for the public.

There are multiple brokers across B.C. that have access to broader insurance markets, and every attempt should be made by your strata corporation to consider the options for renewing their insurance.

A strata corporation might have to consider exclusions or exemptions to certain types of claims, substantially increased insurance deductibles and dramatic increases in costs to renew the policy.

But remember, your policy isn’t just about insuring for that inevitable flood caused by a pipe break, failed washing-machine hose or an overflowing bath tub.

When insurance companies agree to insure your property, their obligation is for full replacement value. If your building’s replacement value is appraised at $65 million, the broker and insurers are securing coverage for $65 million.

If your building is an apartment-style building, the risk increases automatically, because the likelihood of multiple units being damaged in a flood significantly increases.

If you compound that risk with aging building systems, neglected renewals, a frequency of claims and lack of a depreciation plan, it will become much more difficult and costly for a strata corporation to renew their insurance.

Tony Gioventu is executive director of the Condominium Home Owners Association.

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