Building insurance policies in sectional title schemes must meet the scheme’s full needs

Private Property South Africa
Michael Bauer

Trustees of body corporates serving sectional title schemes, especially those who have just been elected and are new to the position, are often not aware that the Prescribed Management Rules governing sectional title schemes lay it down that at the first trustee meeting following the Annual General Meeting the trustees must investigate and decide on the insurance policy for the year ahead and this must be ‘adequate’ to meet the scheme’s full needs.

Building insurance cover of the body corporate, says Bauer, General Manager of the sectional management company IHFM, has to cover all the buildings, including the sections, common property, other permanent, and boundary structures but excluding the land (because it is deemed indestructible) at the replacement value. Trustees need to ensure that the insured values include scaffolding, professional fees, and Value Added Tax. It is further recommended that trustees appoint a professional property valuer every three years to determine accurately the replacement value to avoid under insurance.

Another aspect to be considered is the cover for any additional “luxurious” improvements within the owner’s section. This has to be additionally insured, being paid directly usually via debit order being borne by owner.

This, says Bauer, is an important provision because it does happen fairly regularly that expensive tiling, panelling, carpeting, wooden flooring or other fittings are destroyed by flooding, electrical faults or fire and are not covered by the standard building insurance.

A good tip, adds Bauer, is to pay the insurance in advance either annually (cash flow permitting) or quarterly, thereby avoiding the 10% monthly surcharge which insurance companies will usually charge in collection fees for operating a debit order. It has to be accepted, he says, that almost all insurance policies will need to be increased year-on-year so as to keep pace with the increasing costs of repairs and the rising value of the building and the units in it (if the scheme is being properly managed).

“To minimise these increases and to fight against annual higher payments for adequate insurance will put the scheme at risk and could result in no insurer being willing to cover the scheme,” says Bauer.

Those schemes in which the members accept that regular increases in the levies and the building up of an emergency buffer fund should be part of the body corporate’s policy, says Bauer, tend to have the least difficulty in getting members to accept insurance payments.

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