Insurance in sectional title schemes is sometimes discussed at length and debated as to whether the amounts insured are necessary and, sometimes, even whether insurance of the actual scheme is necessary, says Mandi Hanekom, operations manager for Propell.
Firstly, she says, insurance is of vital importance and proper insurance of the scheme must be taken care of by the body corporate of the scheme.
Section 37 of the Sectional Titles Act sets out the functions of the body corporate and part of this pertains to the insurance of the scheme:
“(f) to insure the building or buildings and keep it or them insured to the replacement value thereof against fire and such other risks as may be prescribed;
(g) to insure against such other risks as the owners may by special resolution determine;
(h) subject to the provisions of section 48 and to the rights of the holder of any sectional mortgage bond, forthwith to apply any insurance money received by it in respect of damage to the building or buildings, in rebuilding and reinstating the building or buildings in so far as this may be effected;
(i) to pay the premiums on any policy of insurance effected by it;”.
It can be seen here that insurance of a sectional title scheme is not an option but is specified in the Act, and so, therefore, must be done. In addition to the Act, it is also dealt with in the Prescribed Management Rules (PMR 29), which deals with the insurance, the liability cover, fidelity cover and how excesses should be dealt with, she said.
The most important thing that the trustees need to be sure of, said Hanekom, is that that insurance value ties up with the sectional plans, the value of the units and the participation quota of the units. The participation quota percentages will vary from unit to unit according to their size, so this must be checked thoroughly.
It is important, too, that owners check that their units are insured properly, and not assume that it has been done.
Any improvements to units should be noted and the insured value of the improved unit must be increased accordingly, said Hanekom. What usually happens in cases such as these, she said, is the owner pays the difference on the higher premium. The body corporate will pay the portion that is ascertained by the participation quota.
Insured values on sectional title schemes should be updated every two to three years, to be sure that the insurance keeps up to date with the market related replacement value, she said.
“If a huge disaster were to take place, such as a fire, and the units weren’t insured to the right value, this would be devastating to the owners as they would not be able to claim for the updated value of their home. If years are spent building a home and putting money into improving it, it would set them back a great deal to start from scratch,” said Hanekom.
The trustees do, therefore, have a huge responsibility to make sure the insurance is handled correctly to protect the units and the scheme itself, she said.
For further information contact Mandi Hanekom on 0861 33 34 35 or email email@example.com.