How the change of use affects the risk of a section

[Updated: 9 April 2026]

Insurers accept a risk on the understanding that a building is used for its intended or disclosed purpose, and they rate and cover that risk accordingly. In a sectional title environment, this generally means the insurer is covering the buildings as defined in the sectional plan.

An insurance policy is a contract where risk is accepted in exchange for a premium, subject to certain conditions. These include compliance with national building regulations, local by-laws, and other applicable requirements.

Duty of disclosure

A key condition of any policy is the duty of disclosure. The insured (the body corporate) is required to inform the insurer of any facts that could influence their decision to provide cover, determine the premium, or continue the policy.

This includes changes such as alterations or improvements, changes in occupation or use, any factor that may increase the likelihood of loss, damage, or liability.

Change of garage to living area

From an insurance perspective, this is usually straightforward. The insurer should simply be advised, and the change noted on the policy schedule.

However, there are important considerations:

A garage is typically rated differently to a dwelling. For example, a garage might be insured at a lower rate per square meter than a finished living area.

Converting the space introduces higher-value finishes, which may lead to underinsurance if not adjusted.

Safety features, such as a fire door between the garage and dwelling, may have been removed, increasing fire risk.

The insurance aspect is relatively straightforward. The insurer should be notified and acceptance of the risk obtained. A prudent underwriter will usually require confirmation that the alterations have been properly approved, failing this, complications could arise at claims stage.

The more complex issue lies in regularising the position with the local authority or the body corporate. This may affect parking allocations, previously approved site development plans, minimum parking requirements, and broader compliance considerations.

Garages used for other purposes

Garages are generally intended for vehicle storage and light domestic use. Where a garage is used for business purposes, for example, manufacturing gates or burglar bars, the risk changes significantly.

In such cases, the insurer should be notified whereafter commercial terms or restrictions may apply.

Exclusive use area (EUA) garages are treated similarly.

Increase in section volume

Additions such as mezzanine floors or attic rooms increase the effective size and risk of the section.

Considerations include:

• The insurer may be covering more square meters than originally declared
• These additions are often constructed from lighter or combustible materials
• Fire and ventilation risks may increase

Again, the solution is to advise the insurer and have the addition properly noted.

Joining two sections

Combining two sections into one larger unit is common, particularly in office environments.

From an insurance perspective, this increases “communication” between sections, meaning a fire could spread more easily. The insurer should always be advised of such changes.

Changing residential use to commercial use

Where a residential section is used for business purposes, the risk profile changes entirely.

Points to consider:

• Residential and commercial policies differ in rating, conditions, and cover
• Business activities may introduce additional fire and liability risks
• Failure to disclose such use could result in a claim being declined

In practice, this often requires a simple policy amendment, but it should never be overlooked.

Electricity and cost implications

In some cases, allowing commercial activity within a scheme can trigger commercial electricity tariffs for the entire complex. This can significantly increase costs for all owners.

These extra costs are not insured, which makes such changes particularly sensitive and important to manage carefully.

Liability and associated risks

Changes in use often introduce new liability exposures. For example:

• Outsourced gyms or instructors operating on common property
• Increased foot traffic from clients or customers
• Storage of hazardous or flammable materials

These scenarios may require updated disclaimers, policy endorsements, or additional cover.

Change of occupancy

Particularly in commercial or mixed-use schemes, new tenants can materially change the risk.

Examples include:

• A takeaway outlet introducing gas and cooking risks
• A paint shop storing flammable products
• A woodworking operation (often excluded unless specifically agreed)

If these risks are not disclosed and accepted, claims arising from them may not be covered.

Unusual or high-risk activities

Occasionally, unexpected risks arise, for example, storage of hazardous materials used in specialised industries.

Even where such activities are lawful and compliant, they can significantly affect the insurer’s view of the risk and may lead to premium adjustments or special terms.

Changes within exclusive use areas (EUAs)

Alterations within EUAs, such as installing swimming pools or structures, also change the risk profile.

These should:

• Be disclosed to the insurer
• Be noted as improvements on the policy
• Be approved where required by the body corporate

Working from home

Not all home-based activities increase risk.  Administrative or office-based work would be deemed low-risk.

Higher-risk examples would include a team of hairdressers or beauty salons operating out of a living room, storage and use of flammable products, regular client visits.

A good example of needing to disclose would be say an importer of items (stock) which each comprise lithium batteries. A garage or a room full of lithium batteries could be problematic.

The key is whether the activity changes the risk exposure. Where it does, the insurer should be informed.

Final thoughts

The examples above are guidelines and not an exhaustive list. Each insurer and policy may respond differently.

What remains consistent is this:

• Changes in use often change risk
• Changes in risk should be disclosed
• Compliance with approvals and regulations remains essential

Engaging a professional valuer familiar with sectional title schemes can also assist in identifying and quantifying these risks appropriately.