Sectional-title insurance is mandatory, but what does it cover?
Category Sectional-title Advice
Those living in sectional-title buildings pay levies every month and included in this amount is a contribution known as sectional-title insurance. Every scheme needs to have this insurance as it is a legal requirement that is dealt with in the Sectional Title Scheme Management Act section 23. These costs are shared by all owners, however, it is usually not shared equally as it is based on a unit's participation quota.
If you want to understand sectional-title insurance better, read on as we will discuss how it works and what you're covered for.
Who pays for sectional-title insurance?
All owners who own a unit in a sectional-title property are liable to pay towards sectional-title insurance. This is factored into the levy fees, which is a monthly contribution that owners pay towards the maintenance and upkeep of the scheme.
Management Rule 23
According to Management Rule 23, it is the responsibility of the appointed trustees to ensure that the building is adequately insured against the following:
- Housebreaking or attempted housebreaking;
- Fire, lightning and explosion;
- Riot, civil commotion, strikes, lockouts, labour disturbances or malicious persons acting on behalf of or in connection with any political organisation;
- Storm, tempest and flood;
- Earthquake;
- Aircraft and other aerial devices or articles dropped therefrom;
- Bursting or overflowing of water tanks, apparatus or pipes;
- Impact with any of the said buildings or improvements by any vehicle;
- Loss of occupation or loss of rent in respect of the above risks and;
If the sectional-title insurance excludes any of the abovementioned items, the trustees will be
in breach of their fiduciary duty and could face the possibility of being personally sued for negligence. Because of this, it is always recommended that trustees seek advice from sectional-title insurance experts when choosing a policy.
How am I covered?
At the very least, sectional-title insurance needs to cover the full replacement value of all the units and common property in the building. What's more, the replacement value of each unit must be specified separately and must be in accordance with the sectional-title plans and the participation quota of the units.
If an owner decides to upgrade their unit, thus increasing a unit's replacement value, the additional cost won't be covered by the sectional-title insurance. Instead, an owner needs to personally pay towards the additional insurance cost, which will be above their normal participation quota.
Tip: To better understand how you're covered by your sectional-title insurance, it is advisable to request a copy of the policy from the trustees. And if you're unhappy about certain aspects, or feel as if the building is not adequately protected, you can bring it to the attention of the Body Corporate.
Sectional-title insurance is designed to exclusively cover the immovable aspects of the residential sections and common property - such as roofs, floors, geysers, walls, and doors. Certain immovable fixtures and fittings are also included. However, if the owners decide to extend the basic coverage to include things like third-party liability, this can be arranged provided it is a unanimous decision.
Who pays for the excess?
If an owner makes a claim, they are expected to pay the excess as prescribed by the Prescribed Management Rule 23. But in certain scenarios, this may be a contentious issue, especially if the damage to an owner's unit was caused by another owner as a result of negligent behaviour, a burst geyser, leaking tap etc. Due to many grey areas, a Body Corporate can pass special resolutions to cater to various types of situations when dealing with excess.
What is excluded?
There are certain items that will not be covered by sectional-title insurance. This includes moveable items such as furniture, appliances and decor pieces. An owner needs to insure moveable items in their private capacity under a policy known as Home Contents Insurance.
The AGM is time for re-assessing
Sectional-title insurance is an important agenda item at the AGM. It needs to be re-assessed at the start of the year and updated annually if needed. Before the meeting, the trustees are advised to seek advice from a specialist sectional-title insurer who will suggest ways to adjust the policy in line with inflation, rising building costs and improvements to the common property or individual units.
If you're on the hunt for sectional-title insurance that meets your building's unique needs, speak to De Lucia Group today. We have expert insurance brokers and financial advisors who will guide you through the entire process and help you choose the best plan for you and your fellow owners. Contact Michael De Lucia - 082 493 1089
Author: De Lucia Group
