Sectional title schemes: the insurance a body corporate must actually carry

Contents

1. What the Act itself obliges the body corporate to insure
2. Management rule 23, clause by clause
3. The three checks that decide whether a claim pays
4. Running the account: trustees change, the record should not
5. Frequently asked questions

Body corporate business is one of the few commercial lines a small South African brokerage can still win on competence rather than price. The scheme has to be insured, the trustees change every year, and almost nobody on the other side of the table has read the rules. That is the opportunity — and the exposure. When a sectional title claim goes wrong, the argument is rarely about whether cover existed. It is about the replacement value on the schedule, the average clause, or a public liability limit that was set years ago and never revisited.

The framework is unusually precise, which makes it easy to audit. Three documents govern it: the Sectional Titles Schemes Management Act 8 of 2011, the Sectional Titles Schemes Management Regulations of 2016, and management rule 23 in Annexure 1 to those regulations. Below is what each actually says, and the checks worth running on every scheme on your book before renewal.

What the Act itself obliges the body corporate to insure

Section 3(1) of the Act lists the functions of the body corporate. Four of them are about insurance:

• 3(1)(h) — to insure the building or buildings and keep them insured to the replacement value against fire and such other risks as may be prescribed.
• 3(1)(i) — to insure against such other risks as the owners may by special resolution determine.
• 3(1)(j) — to apply insurance money received for damage to the building to rebuilding and reinstating it, so far as that can be done.
• 3(1)(k) — to pay the premiums on any policy it effects.

Read on its own, 3(1)(h) names only fire and leaves the rest to be prescribed. That is where brokers get caught out by a piece of drafting worth knowing. Regulation 3 of the 2016 regulations is headed "Other risks to be insured against", but its wording says these are risks a body corporate may insure against. The list is: lightning, explosion and smoke; riot, civil commotion, strikes, lock-outs, labour disturbances or malicious persons acting for a political organisation; storm, tempest, windstorm, hail and flood; earthquake and subsidence; water escape, including bursting or overflowing tanks, apparatus or pipes; impact by aircraft and vehicles; and housebreaking or any attempt at it.

The tension resolves in management rule 23(1)(a)(i), which says the body corporate's policies must provide cover against the risks referred to in regulation 3. So a scheme insured for fire alone, without storm, water escape or subsidence, is not complying with its own management rules — even though the Act's headline duty mentions only fire. That single point is worth raising at your first trustee meeting, because it is usually news.

Management rule 23, clause by clause

Rule 23 is short and every sub-rule has a practical consequence. This is the table to work through with the trustees or the managing agent:

Sub-rule	What it requires	What the broker checks
23(1)(a)	Cover against regulation 3 risks, risks members resolve on, and risks required by holders of registered first mortgage bonds over at least 25% in number of the primary sections	Policy perils schedule against the regulation 3 list; any bondholder notices on file
23(1)(b)	A replacement value specified for each unit and exclusive use area, excluding the member's interest in the land; any member may require theirs be increased	Per-unit schedule exists and is current; a written process for member increase notices
23(1)(c)	Any average clause restricted to individual units and exclusive use areas, so that no such clause applies to the buildings as a whole	Wording of the average condition — the most commonly missed clause
23(1)(d)	A clause making the policy enforceable by a registered bondholder despite circumstances that would otherwise entitle the insurer to refuse payment, unless the insurer terminates on at least 30 days' notice to the bondholder	Bondholder protection clause present in the wording, not just in a broker letter
23(2)	The member pays any additional premium caused by an increase they requested, and any excess relating to damage they must repair; written proof within seven days of request	Excess allocation documented before a claim, not after
23(3)	A replacement valuation of all buildings and improvements at least every three years, presented to the annual general meeting	Date of the last valuation and who performed it
23(4)	Schedules for each AGM estimating the replacement value of the buildings and all improvements to common property, and of each unit	Schedules reconcile with the policy schedule
23(6)	Public liability cover for bodily injury, death or illness on or in connection with the common property and for damage to or loss of property from occurrences connected with it, for an amount determined by members but not less than R10 million in any one claim and in total for any one period of insurance	Limit is at least R10 million and the aggregate wording is checked
23(7)	Insurance against loss of body corporate funds through fraud or dishonesty by a trustee, managing agent, employee or other agent	Fidelity limit set against the funds actually held
23(8)	Any additional insurable interest, authorised by special resolution	Resolution on file for anything beyond the statutory minimum

The three checks that decide whether a claim pays

First, the three-yearly valuation. Rule 23(3) sets three years as the floor, not the target. In a market where building costs have moved sharply and schemes have added carports, generators, solar installations and fibre, an old valuation is a liability. Ask for the valuer's report, not a number in the minutes, and check whether it covers improvements to common property as well as the buildings themselves.

Second, the average clause. Underinsurance is the ordinary way a sectional title claim gets cut, and the mechanics here are specific: rule 23(1)(c) requires that the application of any average clause be restricted to individual units and exclusive use areas so that it cannot be applied to the buildings as a whole. If the policy carries a standard average condition over the total sum insured, the scheme is not compliant, and a single under-declared unit can drag down a common property claim. The general mechanics of average and the sum-insured conversation are covered in our note on underinsurance and the sum-insured review; the sectional title twist is the restriction in 23(1)(c).

Third, the bondholder clause. Most units in a scheme are bonded. Rule 23(1)(d) requires the policy to remain valid and enforceable by the holder of a registered mortgage bond notwithstanding circumstances that would otherwise entitle the insurer to refuse payment, unless and until the insurer terminates the insurance on at least 30 days' notice to the bondholder. If a non-disclosure or a premium default by the body corporate could void the whole policy against bondholders, the wording does not meet the rule — and the bank will find that out before you do.

Running the account: trustees change, the record should not

The practical difficulty with scheme business is not the technical work — it is that your counterparty rotates. Trustees serve until the next AGM, the managing agent may change with a resolution, and the person who agreed the sum insured last year may no longer be on the body corporate. Everything that matters therefore has to live in the brokerage's record rather than in one adviser's phone or memory.

That is where a WhatsApp group with the trustees quietly becomes a compliance problem. Trustee groups are convenient and they are where decisions actually get made, but the messages sit on a personal device, the history leaves when the adviser does, and a FAIS record request cannot be answered from it. A brokerage number with a shared inbox settles the ownership question: the thread belongs to the firm, every trustee's message is attributable, and the file survives a departure — the same problem set out in our piece on the WhatsApp handover when an adviser resigns.

With ORIS, brokerages treat each scheme as a segment: renewal date, valuation anniversary and AGM month sit on the customer record, and a lifecycle trigger fires the valuation reminder well before the three years expire, rather than at renewal when it is too late to appoint a valuer. Messages go out from templates approved by Meta, so an AGM notice reaches trustees who have not been in conversation for months. Records export to CSV for the compliance file or the managing agent. None of that produces a valuation or a schedule — that is adviser and valuer work — but it stops a scheme quietly ageing out of compliance between AGMs. The renewal mechanics themselves are set out in our policy renewal use case, and if you want to see the segment view on a real book, book a walkthrough.

Frequently asked questions

Is a sectional title scheme obliged to insure against storm and flood, or only fire?

Section 3(1)(h) of the Act names fire and "such other risks as may be prescribed". Regulation 3 lists those other risks, including storm, tempest, windstorm, hail and flood, and management rule 23(1)(a)(i) requires the body corporate's policies to provide cover against the risks referred to in regulation 3. Taken together, a scheme insured for fire only is not meeting its management rules. Members can resolve to add further risks, and holders of registered first mortgage bonds over at least 25% in number of the primary sections can require additional risks be covered.

How often must a scheme obtain a replacement valuation?

At least every three years, and the valuation must be presented to the annual general meeting under rule 23(3). Separately, rule 23(4) requires schedules of estimated replacement values — for the buildings and all improvements to common property, and for each unit — to be prepared for every AGM. In practice that means an annual estimate exercise and a formal valuation at least every third year. Schemes with rapidly changing building costs or significant new improvements should revalue more often than the minimum.

Can the insurer apply an average clause to the whole building?

Not if the policy complies with rule 23(1)(c), which requires the application of any average clause to be restricted to individual units and exclusive use areas so that no such clause applies to the buildings as a whole. Check the wording rather than the broker summary: a standard average condition applied to the total sum insured does not meet the rule, and it exposes a common property claim to under-declaration on individual units.

Who pays the excess on a sectional title claim?

Rule 23(2)(b) makes the member responsible for any excess relating to damage to a part of the buildings that the member is obliged to repair and maintain under the Act or the rules, and the member must furnish the body corporate with written proof of payment within seven days of a written request. The member is also responsible for any additional premium arising from an increase in replacement value that the member requested under rule 23(1)(b). Agree the allocation method with the trustees in writing before a claim rather than during one.

Is R10 million public liability enough for a scheme?

R10 million is the statutory floor in rule 23(6), not an assessment of the scheme's exposure, and it applies both to any one claim and in total for any one period of insurance. Members determine the amount in general meeting and may set it higher. For schemes with lifts, swimming pools, heavy parking traffic, commercial sections or high foot traffic on common property, that floor is worth testing against a realistic bodily injury scenario, and the aggregate wording checked, because one large claim can exhaust the limit for the rest of the period.

Does the body corporate's policy cover an owner's improvements inside a unit?

The 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. Where an owner has spent significantly on the interior, rule 23(1)(b) lets that member, at any time by written notice to the body corporate, require that the replacement value specified for their unit or exclusive use area be increased — and rule 23(2)(a) makes that member responsible for the additional premium. Give trustees a written process for those notices, because an unrecorded request is where a shortfall argument starts after a fire.