Introduction

Recently I did a deep dive into all the tasks that trustees need to undertake in order to manage all the legislative and logistical responsibilities of running a successful sectional title scheme. There are a multitude of financial, legal, administrative and physical tasks that need to be planned out and executed by the trustees (possibly with the assistance of a managing agent).

In this series of compliance articles, I will set out checklists for the most important financial, insurance, contractual, administrative and physical statutory responsibilities.

This article will deal with the most important insurance responsibilities that need to be undertaken to ensure that your scheme is compliant with the legislative requirements.

THE LEGISLATION CREATING THE RESPONSIBILITES

The Sectional Titles Act 95 of 1986 (the “ST Act”) came into operation on 1 June 1988, and contains the provisions relating to legal and physical creation (registration and land survey matters) of sectional title schemes and matters incidental thereto.

The Sectional Titles Schemes Management Act 8 of 2011 (the “STSM Act”) came into operation on 7 October 2016. This piece of legislation contains the provisions relating to management and governance of the sectional title schemes, and has Regulations and Annexures (containing the prescribed management and conduct rules) dealing that are also applicable to all schemes.

The Community Schemes Ombud Service Act 9 of 2011 (the “CSOS Act”) also came into operation on 7 October 2016. This piece of legislation has created a statutory alternate dispute resolution mechanism and forum for the regulation of all community schemes. It is supposed to be more accessible, cheaper and faster than approaching the courts. The CSOS can conciliate and give adjudication orders in respect of financial issues, behavioral issues, governance issues, meetings, management services, physical issues and other general issues. The orders have the same effect and can be enforced as if it were and Order of the Court. Furthermore, the CSOS are tasked with taking custody of, keeping and providing public access to scheme documentation. The CSOS must also regulate, monitor and control the quality of all sectional titles schemes governance documentation such as the scheme’s rules. Previously sectional title scheme rules were held at the Deeds Registries Office.

THE CHECKLIST OF INSURANCE REPONSIBILITIES

Efficient financial management is one, if not the most, important functions of the body corporate. Ensuring that the buildings are adequately insured is yet another important financial function. Trustees should ensure that they are compliant with the statutory requirements for insurance by going through the following legislative responsibilities:

1. Insure the building(s) and keep it insured to the replacement value thereof.
2. Obtain a replacement valuation of all buildings and improvements that must be insured at least every three years and present such replacement valuation to the AGM.
3. Prepare for each annual general meeting schedules showing estimates of: (a) the replacement value of the buildings and all improvements to the common property; and

(b) the replacement value of each unit, excluding the member’s interest in the land included in the scheme.

• Insure against such other risks as the owners may by special resolution determine.
• Take out insurance for additional risks when required to do so by written notice to the body corporate of holders of registered first mortgage bonds.
• The insurance policy must specify a replacement value for each unit and exclusive use area, excluding the member’s interest in the land included in the scheme.
• Increase the replacement value specified for that member’s unit or exclusive use area on written notice to the body corporate. The member is responsible for payment of any additional premium payable on account of an increase in the replacement value.
• Apply any insurance money received in respect of damage to the building, in rebuilding and reinstating the building or buildings in so far as this may be effected.
• Pay premiums on any insurance policy.
• Produce to an owner or mortgagee the insurance policy effected by the body corporate and the receipt for the last premium in respect thereof.
• Approve the schedules of insurance replacement values, with or without amendment and determine the extent of the liability, fidelity and any additional insurance cover by the body corporate at every AGM.
• Collect excess payments from owners for claims relating to his/her section, geysers, as well as any exclusive use area that the owner is responsible for maintaining.
• Take out public liability insurance for an amount determined by members in general meeting, but not less than 10 million rand (R10 000 000) or any such higher amount as may be prescribed by the Minister in any one claim and in total for any one period of insurance to cover the risk of any liability it may incur to pay compensation in respect of:

(a) any bodily injury to or death or illness of a person on or in connection with the common property; and

(b) any damage to or loss of property that is sustained as a result of an occurrence or happening in connection with the common property.

1. Take out insurance for an amount determined by members in general meeting to cover the risk of loss of funds belonging to the body corporate or for which it is responsible, sustained as a result of any act of fraud or dishonesty committed by a trustee, managing agent, employee or other agent of the body corporate.

CONCLUSION

As I have shown in this article there are an overwhelming number of statutory responsibilities for insuring the scheme that trustees must undertake. Stratafin offers a free Sectional Titles compliance checklist. Click here to access it: https://insights.stratafin.co.za/compliance-checklist

Furthermore, Confiance Administrative Solutions addresses the ever-growing demand in the market for transparent and professional sectional title management and administration solutions. Confiance Administrative Solutions can assist in buildings where the trustees do not have the time to manage the property correctly, or are struggling with sectional title administration, internal finances and municipal accounts.

WRITTEN BY DR CARRRYN DURHAM