Fidelity cover and the New Regulations

Both the proposed Community Schemes Ombud Services Act (CSOS Act) regulations and the new proposed Sectional Title Schemes Management Act (STSM Act) prescribed rules remove the owners’ option whether or not to purchase fidelity cover.

We believe this is a good thing as the present fidelity rule that the owners must decide how much, if any, fidelity cover is required, is largely ignored. As it seems optional in its present form, trustees have neglected this rule in most cases. Although the proposed STSM prescribed rule 23.(7) replaces present prescribed rule 29.(2)(b) and removes the words “if any”, it still alludes to a general meeting deciding on the amount of cover.

The new proposed CSOS regulations are clear. A community scheme (both Sectional Title Schemes and HOAS) must purchase fidelity cover for a minimum amount of:

(a) the community scheme’s investments and reserves at the end of its last financial year; and

(b) 25% of the community scheme’s operational budget for its current financial year.

My conclusion and understanding after reading both the new proposed CSOS regulations and the new proposed STSM Act Regulations, is that the CSOS Act sets out the minimum amount of cover required but the owners, at a general meeting, will decide whether any more cover is needed.

What does this mean for trustees?

Trustees will need to look at their minimum needs as set out and immediately arrange such cover the moment the new regulations come into effect. It makes sense for trustees to start thinking about this and to arrange this cover. Trustees need to understand that while their present building policy has a small fidelity section, most of the buildings policies do not comply with these rules; neither the existing nor proposed new rules. Trustees need to engage with their brokers to look at providing this cover. Now is a good time to start the process.

What does this mean for managing agents?

More focus will be on the managing agent’s own fidelity cover as bodies corporate will be asking more questions in this regard.  Managing agents covered by PIMA (Professional Indemnity for Managing Agents) are already underwritten; therefore bodies corporate under their management qualify for discounted fidelity premiums. Managing Agents will need to select their personal indemnity and fidelity insurers more carefully, taking the bigger picture into account.

What is the cost to the body corporate?

This will depend on the underwriting application but typically, a body corporate seeking R1 million cover and managed by a managing agent covered under a PIMA policy, will enjoy the full fidelity cover for approximately R2 500 per annum.

We suggest that trustees and managing agents take note of these new fidelity regulations and rules and start preparing now.

Relevant links:

New Community Schemes Ombud Services Act (CSOS Act)

New Sectional Title Schemes Management Act

New Proposed CSOS Act Regulations

New Proposed STSM Act Regulations


Author: Mike Addison

Addsure are the leaders in sectional title insurance. Get fit and proper advice from advisors who understand sectional title.  Contact us in Johannesburg (011) 704-3858; Durban (031) 459-1795; Cape Town (021) 551-5069