Buildings & insurance: Are you legal?

Are you an owner of sectional title property? Are you aware that your trustees are obliged by law to insure your property?

The Sectional Titles Scheme Management Act 2011 (3.1(h)) makes it a requirement that the body corporate must insure the buildings and keep it insured to the correct replacement value against fire and other such risks as may be prescribed. Prescribed Management Rule 23 sets out the details and the extent to which insurance must be secured.

In some developed areas due to various circumstance properties have deteriorated to a point where compliance with STSMA requirements have become somewhat challenging. In the inner-city areas, for example, the absence of adequate maintenance and general neglect of properties has seen substantial deterioration and depreciation of property. As a result, many community scheme properties deteriorate to the point where they became an unacceptable insurance risk. A major contributing factor to this is the diminishing financial support structures necessary to maintain community scheme property. The lack of financial support erodes the schemes ability to maintain the property and imposes ever increasing pressure to keep costs down. All too often one of the first financial supports to go is insurance.

As a result of such property deterioration, insurance risks increase to such a degree that most insurers declared these areas ‘no-go’ zones. Reasons for increased risk exposures include:

1. Increase in spread of fire risk within a building or across multiple buildings due to poor electrical installations; deteriorated or non-existent firefighting equipment; the termination of services (water/electricity).
2. Increase in water related damage due to deteriorating or poor use of infrastructure.
3. Increased potential for liability claims due to lack of maintenance; (eg. non-functional lifts; damaged glass & flooring; poor illumination)
4. iIncreased potential for liability claims due to non-adherence of building regulations and by-laws; (eg. lack of handrails and swimming pool safety requirements)
5. vIncrease in malicious damage by tenants, visitors or trespassers.

These are only a few reasons why insurers will not offer terms. Prescribed Rules dictate that “the trustees shall take steps to insure the buildings” In other words, the trustees are obliged to take whatever measures are necessary to render their property to an insurable state. Failure to do so brings them into conflict with the regulatory requirements.

While insurers remain reluctant to offer terms on such properties, as is their right, until such time as the property owners begin to upgrade and maintain their properties in an acceptable manner, the insurers will continue to decline to insure these properties.  For the property owner, this may seem to be an unavoidable dilemma which is why it is all the more important that the property owner works with the trustees to ensure the property is properly maintained and fully compliant.

Do you own property within a sectional title development that is currently uninsured? If so, it is in your best interests that you familiarise yourself with current regulations before you find yourself on the wrong side of legislative requirements.