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122 posts

Master Geek


#171498 20-Apr-2015 19:58
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Hi all,

Have an interesting conundrum which I thought I'd post here to see what people think, which relates to home insurance.

My partner and I purchased a townhouse mid last year, which is attached to another townhouse, where both properties share a retaining wall. As a result, both properties are on a cross lease and for insurance purposes, are insured together under one policy.
When we purchased the property, we took over from the previous owners and their contributions to the insurance, which is split according to the LINZ report, as the other townhouse is bigger.

The previous owners of our property was renting it out, so shortly after we changed/added our details onto the insurance policy, we advised the insurance provider of the fact that we were owner occupiers - This resulted in a discount on the premium which we agreed with the other owner should be applied to our premium contributions - There was no change to their premiums and what they paid.

Now, this year the policy is up for renewal, and we went about obtaining the new pricing for the following 12 months. As my partner and I have been toying with the idea of living overseas at some point, we decided to get some pricing options if we decided to rent the property out.

So we requested 3 pricing options:



  1. If both properties were rented

  2. If one (our property) is owner occupied, and the other property is rented

  3. If both properties are owner occupied.


What we discovered is that if both properties are rented, our premium increases from it's current amount to about $400 extra. If one (our property) is owner occupied, then the pricing is similar to what it is now, and if both properties are owner occupied then there is no further discount - The premium would still be approx $400 less than if both properties were rented.

So here lies the issue: The other owner is saying that as the premium is the same price as if 2 units were occupied, my partner and I have had a 'good deal' as last year only our premium has been allocated at a discount.
In other words, he believes that the premium (and $400 discount) should be split for the next 12 months as per the LINZ report allocations.

My thoughts are that as we are the ones in effect 'creating' the discount due to being owner occupiers in our property, that the premium discount should be applied to our proportion of the premium. Subsequently, if we decided to rent our property out, then we should have to pay all the extra premium that would be added to the policy.

I really think that this is quite a bizarre insurance policy, as I expected there to be some degree of discount for one of the houses being owner occupied, and a bigger discount if both were owner occupied. The thought being, is that owners living within a property are generally more likely to look after it than a renter would, and it makes no sense for a full 'owner occupier' discount to be added to both properties if one is still rented out as there is still a greater risk of loss/harm.

Anyhow, what are your guys thoughts on this? Appreciate any ideas on the matter.

Thanks!

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Mad Scientist
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  #1288237 21-Apr-2015 08:10
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This is the weirdest thing I've ever heard. Go your separate ways with insurance. They are two different properties and shouldn't be insured as one.




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122 posts

Master Geek


  #1288244 21-Apr-2015 08:38
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joker97: This is the weirdest thing I've ever heard. Go your separate ways with insurance. They are two different properties and shouldn't be insured as one.


Unfortunately this is not possible - As the land is shared between both properties the insurance also has to be shared - I guess if something were to affect the land it would have an effect on both townhouses. Technically because of this, the insurance falls under a 'body corporate' even though it is only two townhouses, we're not talking a large apartment block.

Some insurance providers won't even insure such properties, eg. AA insurance only deal with standard "one house/freehold" arrangements.

 
 
 
 


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  #1288246 21-Apr-2015 08:43
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Many many moons ago our first home was a cross lease arrangement. The insurance was done separately.




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646 posts

Ultimate Geek


  #1288247 21-Apr-2015 08:44
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Own a cross lease property myself.

It is joined to the next house in the garage.

Has its own separate insurance.

No problem.




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  #1288248 21-Apr-2015 08:46
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Honestly, I would either move, or buy the other property and control it all. Can't stand these sort of split-brain argumentative situations. I still don't get why the insurance is joint, we've never encountered this joint-insurance rubbish with a townhouse.

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  #1288251 21-Apr-2015 08:47
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That does sound weird. I think you need to act quickly before things sour. My suggestion would be to tell the other owner you are not sure about the discount allocation and that you would be happy to go with whatever an independent arbitrator says. See if they have the courage of their convictions at that point. 

My opinion is that if you both owner occupy or both rent then the insurance should be split as per the LINZ allocation. If you rent yours out but the other owner occupies, then they get the discount, and vice versa. This is how I would put the argument to any sort of arbitrator, and to the other owner.



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Master Geek


  #1288254 21-Apr-2015 08:51
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NZCrusader / KiwiNZ - Do you mind me asking who your insurance providers are? Ideally it sounds like it would be nice/simpler if we both just managed our insurances separately. I don't suppose either of you know what happens if the land itself is damaged (eg. in an earthquake) under such an arrangement?

 
 
 
 


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  #1288258 21-Apr-2015 09:03
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You make a claim and let the insurer sort it out




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Ultimate Geek


  #1288261 21-Apr-2015 09:05
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@ OP,

I use Lumleys, but it shouldn't really matter.


Just go into a branch of an insurance company or someone that resells the insurance services.
Find who will provide the best price for the cover (or whatever you think you need).

Make sure to include the cost of demolition etc in the total sum you would receive, should the place need to be rebuilt in a disaster.


Bring all the details with you on the property too.

You might need an engineering report or a statement declaring existing damage / repair work etc.



Regardless, the insurance company will walk you through it.




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  #1288331 21-Apr-2015 10:47
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Yes the OP's situation does seem very very unusual. I own 5 rental properties - all of them are units in blocks of flats.

Four of them are cross-leased. These are ALL separately insured by the individual unit owners, and we don't even all use the same insurance companies.

I have had no insurance hassles (and I am in Christchurch) - EQC and my insurance company apportioned land damage on a percentage basis. For example in one case I got a payout from my insurer for my 1/8th share of the damaged driveway. In another case I got a 1/10th share of the payout.

My 5th unit is owned under a body corporate. In that instance the body corporate insures the whole block, and I simply pay 1/10th of the premium.

If your property really is cross-leased, and there is no formal body corporate running and maintaining your property, you should be free to insure your individual unit with whichever insurance company you like. I would definitely ask around for advice on this. Your solicitor should be able to answer this in a 2 minute phonecall.

EDIT: The only known exception to this would be if there is a specific clause in the 'Memorandum of Lease' stating that the building must be insured as a whole, but this is very rare.

The Memorandum of Lease sets out all the rights and obligations of all the lease holders and is typically valid for 999 years from the date the cross-lease was formed. You should have been given a copy of the document by your solicitor when you purchased the property and I would strongly suggest anybody in a cross-lease situation reads their one so they are familiar with the contents.

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  #1288349 21-Apr-2015 11:15
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Strange setup you have there. Not heard of joint insurance for cross lease property.

Our first house was a cross lease situation and insurance was absolutely separate. Policies were with various insurance providers over some thirteen years, and none of them ever suggested that we should be on some kind of joint policy.




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cisconz
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  #1288360 21-Apr-2015 11:30
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jtan: NZCrusader / KiwiNZ - Do you mind me asking who your insurance providers are? Ideally it sounds like it would be nice/simpler if we both just managed our insurances separately. I don't suppose either of you know what happens if the land itself is damaged (eg. in an earthquake) under such an arrangement?


Same for me  - I use Vero and no issues




Hmmmm


sxz

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Ultimate Geek


  #1288372 21-Apr-2015 11:52
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Lawyer here.

Some Cross Lease instruments require that insurance be shared like OP suggests.  That said, many people ignore this and do their own insurance.  Not having joint insurance in that case means you are breaching the terms of the Lease, which if there are only two of you, and you both agree to it, there mightn't be much loss.  There can be risks with either approach however.  If you are joined to their property it may be in your best interest to know for a fact that they are insured.  You can only know this if you have a joint policy with them.

Consider this:  You insure your flat only.  You make full disclosure to your insurer of the circumstances.  You pay your premiums.  Your neighbour tells you their property is insured.  They fail to renew their insurance.  Their flat burns down, damaging yours, as they have a joined wall.  Your insurer might decide that they wont pay you out because your neighbour was not insured and it was a requirement of your lease to have joint insurance.

 
Unlikely? probably.  Something to consider?  Yes.

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Ultimate Geek


  #1288543 21-Apr-2015 14:46
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It is entirely possible. I have a 2 brm unit on a cross leased section. There is another 2 bedroom unit and both are attached together divided by a concrete wall. I have my own insurance for this property.

jtan:
joker97: This is the weirdest thing I've ever heard. Go your separate ways with insurance. They are two different properties and shouldn't be insured as one.


Unfortunately this is not possible - As the land is shared between both properties the insurance also has to be shared - I guess if something were to affect the land it would have an effect on both townhouses. Technically because of this, the insurance falls under a 'body corporate' even though it is only two townhouses, we're not talking a large apartment block.

Some insurance providers won't even insure such properties, eg. AA insurance only deal with standard "one house/freehold" arrangements.

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  #1288553 21-Apr-2015 14:57
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Take a step back and put yourself in their shoes.


Since the discount is due to both units being owner occupied, then I think you should be sharing the discount as per the LINZ report allocations - that is the fair thing to do given it takes both parties to get that discount.

I bet you'd be annoyed if the other party rented their unit out next week and then asked you to pay half the difference of the increase. If you rent out your unit then you should be paying the entire difference.  If they also then rented their unit out then there would be a case for sharing that increase in insurance... but only at the time of renewal since they gave you that curtesy this time of receiving the discount.

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