Cedric Stephens, Contributor

Question: I own a unit in a Florida condominium complex. The building is part of a high rise. It suffered over US$30 million in damage during hurricanes Frances and Jeanne in 2004. The insurance payout was only US$2 million. Because of this, most owners have decided to sell at bargain-basement prices. I am now looking at buying real estate here, possibly another condo. Based on my experience abroad, I worry that I could face a similar problem here. Is this possible?

- J.J., Ocho Rios, St. Ann.

Answer: Strata plan lot owners - to use their legal name - here in Jamaica can learn important lessons from your experience in Florida.

Insurance for strata lots, or condos, has been around locally for about 40 years. As a result, insurance buyers and sellers tend to deal with losses in abstract. Decisions are based solely on dollars and cents. Sellers, that is, insurers, agents and brokers, see streams of income. Owners, who do little or no homework, try to cut the expense of insurance. What the law says, often takes a back seat instead of being central to the decision making.

Local condos could face problems similar to those you had in Florida. This is in spite what The Registration (Strata Titles) Act, 1969 says.

The situation is not different from what happens with motor insurance. Vehicles that operate on public roads are required by law to have insurance. Yet accidents take place daily where victims end up without redress. Many times this is due to the fact that the owner/driver disobeys the law. They turn out to be what is called in legal circles 'men of straw'.

Some persons who buy units in strata plans do not use reason to make decisions. Others believe that it is okay to break the law. Those in the first group argue that condo insurance is optional; that the sum insured for the property does not have to be based on its rebuilding cost.

Members in the second group feel that the premises will never be damaged, that paying premiums to an insurer is a waste of money.

Here are a few things to bear in mind that can help to lessen some of the risks associated with this type of real estate investment:

1. Point your internet browser to http://www.moj. gov.jm/law/search. This is the website of the Ministry of Justice. Follow the instructions there to find the Registration (Strata Titles) Act, 1969. Download a copy and study it.

2. The main duty of the strata corporation (which I believe is similar to a condominium association in Florida) is to effect insurance.

3. "Fire, earthquake, hurricane and other risks" are the only perils prescribed by the act.

4. A loophole in the law allows the strata corporation to vary the prescribed risks. This allows a measure of flexibility in the way the coverage is arranged.

5. The law requires that the building should be insured for its replacement value. If you plan to buy a unit in an existing development, ask to see copies of the most recent valuation. This should provide clues about compliance with the law. In the case of a new development, try to get information from the developers to satisfy yourself that the law will be complied with.

6. Contact owners of other strata lots to get a sense of the problems they have faced in relation to insurance.

7. Perils insurance is subject to compulsory deductibles (or excesses). It is currently two per cent of the sum insured for losses arising from earthquake and hurricane. In the case of a building valued at $100 million, losses would have to exceed $2 million for the coverage to be triggered. Funds should therefore be accumulated to pay for such losses.

8. Construction standards in Jamaica tend to be far more rigorous than those in Florida given our exposure to earthquakes.

To conclude, the risks associated with the ownership of strata lots can, with sound management, be minimised.

Cedric E. Stephens provides independent advice on risk management and insurance. For free information or counsel, email: aegis@cwjamaica.com or business@gleanerjm.com.