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Strata building insurance is no more complicated than any other form of building insurance, although it may be more expensive if it’s organised by a strata manager, as they typically receive upwards of 20% commission from the insurer that’s then incorporated with the premium.
The good news is that despite the lawyer’s reluctance to earlier clarify the strata insurance matter, your Scheme appears to meet the criteria for its Owners Corporation (O/C) to be exempted from the otherwise compulsory requirement to hold that type of policy, as the buildings comprising each of your lots are physically detached, and each building is contained wholly within the boundaries of its lot.
If that’s indeed the situation, then provided your O/C (i.e. the 2 owners) unanimously resolves in that way in accordance with a motion on the agenda for its next General Meeting, then thereafter building insurance for the individual lots is at cost to and at the discretion of their individual owners.
Incidentally, precisely the same criteria applies to the requirement for the O/C of a two lot scheme to have a Sinking Fund.
Sect 83(4) of the NSW Strata Schemes Management Act (1996) currently applies, as will in identical terms Sect 160 of the 2015 Act that’s to be introduced this November.