Insurance is an extremely important matter for sectional title bodies corporate, owners and trustees



Insurance is an extremely important matter for sectional title bodies corporate, owners and trustees, but is all too often played down or left off the annual general meeting agenda altogether. The Sectional Title Act requires that the buildings and all improvements to the common property be insured to their full replacement value against a number of disasters. These include fire, riot, civil commotion, labour disturbances, natural disasters such as floods and earthquakes, water damage from burst pipes and damage through housebreaking. And, says Neville Schaefer, CEO of Trafalgar Property and Financial Services, which manages over 70 000 residential units countrywide: 'It is the duty of every owner to obtain an assurance from the trustees that the insurance policy of the body corporate complies with the requirements as laid-down in the Management Rules'. Copies of the actual current insurance policy should be available at the AGM for perusal by any of the owners who may wish to do so. In addition, the trustees and managing agent should be asked at the AGM if the payment of the insurance premium is up to date, and their answer recorded in the minutes of the meeting. The matter of the replacement value of units is important to every owner, says Schaefer, because if a unit is under-insured, the insurance company will invoke the 'average' clause included in most body corporate insurance policies. The implication of this is that an owner will then be deemed to be their own insurer for the shortfall between the amount the unit is insured for and the amount it actually costs to replace or repair that unit. 'If, for example, the actual cost of replacing the unit is R250 000 but the amount for which the unit is insured on the replacement schedule submitted to the AGM is R200 000, the under-insured amount of R50 000 becomes the owner's liability.' 'This highlights the importance for all owners to insist that the replacement value of their units is regularly updated.' The next step to be taken is to insist that a qualified professional person and/or a reputable company with the necessary credentials perform the replacement valuations. The trustees cannot and should not be left to make a decision on what the replacement value of the complex or units should be. 'There is a further aspect of the insurance of a unit to which attention has to be drawn: the instance where an owner has made improvements to his unit or has a swimming pool in the 'exclusive use area' adjoining his unit,' says Schaefer. Where an owner has for example refurbished his unit by replacing the kitchen and /or the bathroom fittings and tiles, it is important that he increases the replacement value of his unit by the amount that he has spent on the refurbishment. An owner with a pool must also insure against damage to the pool and motor as well as cleaning equipment, as its restoration may cost far more than its original installation. There are other items that could also be included in the replacement value of a unit, such as expensive light fittings, fitted carpeting and specially fitted cupboards or built-in bookshelves. Owners are advised to consult an insurance company if they are unsure about what to include. Meanwhile, says Schaefer, the proper insurance of every owner's investment in a Sectional Title complex deserves to be handled with good business sense and forward planning by all connected with the administration and finances of a body corporate. Article: Property24 News 04/04/2002 For the latest real estate news, visit www.property24.co.za