Advice and Opinion

Body corporate insurance must be assessed regularly by trustees

One of the most important items on the list of sectional title trustee duties is to ensure that all the buildings and improvements within their sectional title scheme is insured to the right value and this is something that should be discussed at every Annual General Meeting, says Mandi Hanekom, operations manager of the sectional title finance company Propell.

Prescribed Management Rule 29(1)(a) says, “At the first meeting of the trustees or soon thereafter as is possible, and annually thereafter, the trustees shall take steps to insure the buildings, and all improvements to the common property, to the full replacement value thereof, subject to negotiation of such excess, premiums and insurance rates as in the opinion of the trustees are most beneficial to the owners,…”

There are two things that need to be checked with regards to insurance, when the sum insured was established and by whom the value was set. It is advisable every few years to contract a professional valuer to establish values, as these figures will be closest to the correct replacement value, which is what the body corporate will insure for. The valuer will measure up and assess the value of each unit as well as the common property.

In many cases the insurance policy might not be updated often enough and on closer inspection it is found that the scheme is under-insured, which can be disastrous if anything, such as fire or flood, should happen that damages major sections or the whole scheme, said Hanekom.

Insurance safeguards the owners’ investments against disaster and it is advisable for trustees to choose an insurance advisor that specialises in sectional title as policies can be complicated. The sum insured is not only the value of the combined units but the cost of replacing the total scheme including common property and amenities. This amount will include demolition of the old, professional fees, and other replacement services or related costs.

While trustees might opt for a fixed escalation each year to assist them in ensuring the value of the insurance stays up to date, this is not entirely advisable, as this could lead to over-insuring which could in turn leads to overpayments, therefore a waste of funds, said Hanekom. Property values increase at different rates in different areas so the fixed increase will in all likelihood not be the correct amount each year.

If there is any uncertainty as to how the current insurance amount was established or when the sectional title scheme was last valued, it is likely that it is not insured for correct replacement value. This must be dealt with immediately and should not be held over until the next AGM, said Hanekom.