Understanding Buildings Insurance in Sectional Title Schemes: A Comprehensive Guide

Sectional title schemes in South Africa face comprehensive insurance requirements established by legislation designed to protect scheme assets and members' interests. However, confusion often exists about what these requirements entail and what coverage actually includes. Understanding your scheme's insurance obligations represents a fundamental aspect of responsible scheme management.

The Legislative Framework

The Community Schemes Ombud Services Act and the Sectional Titles Schemes Management Act establish specific insurance requirements for all sectional title schemes. These aren't optional recommendations—they're legal obligations that trustees must fulfil. While building insurance often receives the most attention, it actually represents just one component of a three-part insurance structure that every compliant scheme must maintain.

The Three Essential Cover Areas:

1. Buildings Insurance: Protecting the physical structures against prescribed risks

2. Fidelity Insurance: Protecting scheme funds against fraud and dishonesty

3. Public Liability Insurance: Protecting against claims for injury or property damage

Each component serves a distinct purpose, and collectively they provide comprehensive protection for the scheme and its members.

Buildings Insurance: The Foundation Layer

The body corporate must insure all buildings in the scheme are insured to their full replacement value against fire and other prescribed risks. This requirement is specific and comprehensive, covering:

• Lightning, explosion, and smoke damage

• Storms, wind, hail, and floods

• Earthquakes and subsidence

• Water damage from burst pipes

• Riots, strikes, and resulting malicious damage

• Impact by vehicles and aircraft

• Housebreaking and attempted theft damage

  
  

Valuation Requirements: Legislation mandates that replacement valuations be undertaken at least every three years and presented at the Annual General Meeting. These valuations must specify a replacement value per unit and allow members to request increases for their individual units' values if they've made improvements or believe the standard valuation is inadequate.

Fidelity Insurance: Protecting Your Funds

Every community scheme must ensure against monetary loss due to fraud or dishonesty by insurable persons—a category that includes trustees, scheme executives, managing agents and their employees, and contractors who handle scheme funds.

The minimum cover required equals the scheme's reserves and investments (as at the end of the last financial year) plus 25% of the current year's operational budget. This substantial cover requirement recognises the significant sums that flow through scheme accounts and the potential for catastrophic loss if trusted individuals prove dishonest.

Public Liability Insurance: Managing Third-Party Risks

The body corporate must maintain public liability insurance protecting owners against claims for injury, illness, death, and property damage occurring on or linked to common property. Current minimum cover stands at R10 million per claim, though schemes can opt for higher limits through special resolution.

This cover proves essential when visitors, contractors, or members of the public suffer injuries or property damage on scheme property. Without adequate liability insurance, individual owners could face personal liability for such incidents.

What Buildings Insurance Actually Covers

Understanding the practical scope of building insurance helps set realistic expectations. Cover typically includes:

• Fire, lightning, and explosion damage

• Wind, hail, storm, and snow damage

• Burst pipes (excluding wear and tear failures)

• Burst geysers

• Impact damage, such as vehicles colliding with gates or walls

• Accidental damage, such as paint spillage or dropped heavy items

• Flood and sudden water damage

• Damage caused during break-ins or burglary attempts

  
  

Critical Exclusions: What's NOT Covered

Many disputes and disappointments arise from misunderstandings about what building insurance doesn't cover. Common exclusions include:

Water-Related Exclusions:

• Water penetration over time from failed waterproofing

• The failed waterproofing materials themselves

• Recurring water damage when it rains due to ongoing leaks

• Gradual ceiling damage from leaking plumbing above

• Seeping water, dampness, and mould from pinhole leaks

  
  

Maintenance-Related Exclusions:

• Decayed, rusty, or corroded pipes requiring leak detection and repair

• Leaking waste or drain pipes not under pressure

• Cracks in tiles or walls unrelated to specific insured events

• Damp conditions

• Damage of unknown or unidentifiable cause

  
  

Design and Workmanship Exclusions:

• Damage resulting from defective design

• Damage resulting from poor workmanship

• Tree roots growing into pipes or walls over time

• Retaining wall failures or leaning walls

  
  

Scope Exclusions:

• Damage to vehicles or other non-body-corporate property

• Damage to owners' or tenants' personal contents

• Loss of use or consequential losses

Individual Owner Insurance Rights

While the body corporate maintains comprehensive buildings insurance, individual owners retain the right to arrange additional cover for their own sections. This might include enhanced cover limits, broader scope, or cover for improvements and renovations that exceed the standard valuation.

Keeping Cover Current

Insurance isn't a "set and forget" obligation. Schemes must actively manage their cover by:

• Conducting replacement valuations every three years

• Reviewing the cover annually to account for property improvements

• Adjusting fidelity cover as reserves and budgets change

• Considering higher liability limits as award trends escalate

• Ensuring all new construction or improvements are properly declared

  
  

The Importance of Owner Education

One of the most valuable services trustees can provide is educating owners about cover. When members understand what their scheme insurance does and doesn't cover, they can make informed decisions about personal insurance needs and maintain realistic expectations during claims.

Regular communication through newsletters or email updates explaining common cover scenarios helps prevent disputes and dissatisfaction when claims occur. Simple examples of covered versus excluded situations demystify policy terms and promote understanding.

Compliance as Good Governance

Arranging comprehensive, compliant insurance isn't merely a legal checkbox—it represents fundamental good governance. Understanding Buildings Insurance in Sectional Title Schemes, you must ensure it is:

• Insuring buildings at full replacement value and updating these values regularly

• Protecting scheme funds from fraud and dishonesty through adequate fidelity cover

• Maintaining sufficient public liability protection as prescribed by legislation

  
  

Schemes in Midstream, Ballito, and throughout South Africa that prioritise proper insurance compliance demonstrate responsible stewardship of collectively owned property and provide essential protection for all members. Understanding these requirements and ensuring proper cover marks the difference between adequate risk management and potential financial catastrophe when unexpected losses occur.