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Four insurance considerations for body corporates

| Article by Bertus Visser, Chief Executive of Distribution, PSG Insure

As times are tough economically, body corporates – whether for commercial or residential property – need to make sure they have adequate insurance in place. If you serve on a body corporate or work in an office park, the below is a useful reminder on what is expected and required of you.

Compliance with legal requirements

Last year saw new regulations and requirements from the Community Schemes Ombud Service Act (CSOSA) and the Sectional Titles Schemes Management Act (STSMA) – under which body corporates and all other community schemes fall. While some legal requirements only apply to sectional title schemes, others – such as the requirement to obtain fidelity cover – apply to all community schemes.

By now, all community schemes should be registered with CSOSA. This applies to all sectional title schemes, share block companies and home or property owners’ associations. Further, all schemes should have lodged their governance documentation with CSOSA and submitted the scheme’s annual return and annual financial statements within four months of its financial year end. There is also a quarterly levy payable.

In addition, sectional title schemes have to notify the CSOSA, the local municipality and the local Registrar of Deeds of their domiciles, and must each establish a reserve fund by opening up a separate bank account and submitting a separate budget and statement for this fund. They also have to prepare a written maintenance plan.

Cover against fraudulent losses

Regulation 15 of the COSAS, 2011 states that ‘every community scheme must insure against the loss of money belonging to the community scheme or for which it is responsible, sustained as a result of any act of fraud or dishonesty committed by any insurable person’.

The definition of who qualifies as an insurable person is wide but effectively refers to any person dealing with the money of the community scheme in way whatsoever. This would include any scheme executive, employee or agent who has control over money and any managing agent, contractor, employee or other person acting on behalf of, or under direction of, a managing agent. 

The minimum amount of fidelity cover required equals the total value of the community scheme’s investments and reserves at the end of its last financial year plus 25% of its operational budget for its current financial year. However, schemes would be wise to look at their specific investment strategies and may wish to have more cover for unforeseen expenses.

Protecting the building and its surrounds

Financially difficult times can make fraudulent acts more likely, as some people may be desperate to make ends meet. It is therefore vital to safeguard a scheme financially as much as possible.

It would be worthwhile considering liability cover for damages caused on the property. What this means is that if an accident happens that impacts one of the tenants at an office park, for example, the office park would be covered. It would also extend to neighbours and surrounds. Imagine if a flood occurred within the office park that also damaged a neighbouring office park. Any claims put in would need to be covered to avoid financial loss – which could be quite costly without cover.

Standard building insurance is also needed to protect against storm and fire damage, for example. However, regular maintenance is required to keep the premises in top shape for insurance purposes. This includes, roof maintenance, making sure no damages have occurred to exterior walls and keeping security features in good working order and in accordance with the insurance policy. If an office park has a security gate, the body corporate is responsible for making sure it is utilised and maintained.

Keeping up with valuations

For a scheme’s property to remain insured, all buildings under sectional title are required to be valued at least every three years. It is the obligation of the managing agent and trustees on the body corporate to have this valuation completed. Aspects that will come into consideration include the replacement value (including the cost to remove rubble) of the entire premises should it be destroyed, as well as the cost of planning and executing to rebuild.

It can be quite an effort to keep up with all the requirements. So, to avoid any insurance issues, it would be wise for body corporates to seek the advice of a qualified insurance adviser. This will help to keep on top of things, and ultimately ensure that the scheme is correctly covered.


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