Homeowners’ associations and insurance

[Updated: 22 August 2025]

Community schemes are usually structured as sectional title schemes or HOAs (homeowners’ associations). The HOAs are usually either in the form of an association with a constitution (common law association) or an NPC (non-profit company), previously known as a Section 21 company. Some HOAs refer to trustees and others to directors as the representatives of the entities.

Sectional title vs HOA
In the sectional title environment, we are guided by legislation (the Sectional Title Schemes Management Act and its regulations, including prescribed management and conduct rules), which set out the scheme’s functions, duties and responsibilities in respect of insurance.

In the HOA environment, trustees or directors are guided by the constitution and owner agreements in the case of a common-law association, or the memorandum of incorporation (MOI) in the case of non-profit companies.

Unless otherwise agreed, owners will insure their own properties within the scheme; however, the HOA will be responsible for the common areas.

Considerations for HOA directors or trustees

HOA directors or trustees need to consider the insurance needs of the HOA and should do so by:

• Carefully scrutinising the constitution or MOI for reference to insurance.
• Keeping a formal list of insured immovable property and improvements that require cover.
• Keeping an inventory of any moveable property requiring cover, e.g. weed eaters, gym equipment, refrigeration equipment, etc.
• Checking minutes for resolutions in respect of insurance.
• Having a qualified valuer value the common property and identify the extent of the common property for which the HOA is responsible.
• Ascertaining whether there are servitudes over municipal property for which the HOA is responsible.
• Using common sense in determining the risks, e.g. how drains cope with heavy rains, maintenance plans for gates, roofing, paving, potential problematic trees or roots, etc.
• Engaging the services of an insurance advisor who specialises in community scheme risks.
• Reviewing contracts with service providers (e.g. security, landscaping, maintenance) to ensure their insurance responsibilities are clear and that they carry their own liability cover, naming the HOA as an additional insured where appropriate.
• Assessing cyber and data breach risks, particularly where owners’ personal information is stored electronically, and considering a cyber liability extension or policy.
• Confirming the adequacy of public liability limits, not just for common areas, but also for events, visitors, contractors, and unusual exposures such as water features and playgrounds.
  Verify against MOI documents, as outlined, and per the insurance advisor’s advice.
• Checking compliance with lender requirements if the HOA has any mortgage or funding agreements.
• Ensuring compliance with municipal bylaws that may require certain covers (e.g. public liability for public-accessible facilities).
• Reviewing indemnities in the constitution/MOI, and if absent or inadequate, seeking legal advice to amend them to better protect directors/trustees.
• Checking the annual financial statements and budget against the Community Schemes Ombud Service (CSOS) Regulation 15(3) and the MOI fidelity requirements. Ensure that the fidelity insurance meets the formula prescribed in Regulation 15(3) and that the policy wording complies with all requirements of Regulation 15. This includes verifying that the MOI’s fidelity insurance provisions are met in full.
• Documenting insurance decisions in the minutes, including what was reviewed, the advice received, and the reasoning for selecting certain covers or limits.
• Considering business interruption or loss of income cover for income-generating facilities (e.g. clubhouse rentals, solar energy sales).
• Scheduling an annual risk walk-through with the broker or insurer to inspect the property and identify emerging risks before renewal.
• Evaluating special risks such as pools, gym equipment, elevators, generators, or solar installations for adequate cover and safety compliance.
• Reviewing policy exclusions annually to ensure directors understand where cover does not apply.

Ensure accurate valuations
Insurers are often faced with lower premium income versus higher risk in the HOA environment, as essentially, they are only collecting premiums based on the sum insured of the common areas, without spreading the risk over all the buildings. Bear in mind, there is usually a higher risk in the entrance areas and walkways, particularly in respect of third-party liability claims and gate or boom impact incidents. For this reason, insurers often need to apply an average. In other words, where buildings or improvements are found to be under-insured, insurers will only pay claims in proportion to the under-insurance. This strengthens the case for the need to value HOAs accurately.

The importance of liability cover
Liability cover is especially important, particularly with regard to trustees’ or directors’ liability. In the sectional title environment, trustees are indemnified to some degree; however, in many HOA constitutions, the indemnity is conspicuous in its absence. Furthermore, NPC-constituted HOAs are subject to the Companies Act, and directors need to be more specifically covered.

HOAs that also incorporate sectional title schemes should preferably be insured by the same insurer under advice from the same intermediary. Liability risks as well as the material risks can then be looked at as a whole, reducing the potential for disputes or gaps in cover.

Always consult the specialists!
A specialist community scheme broker or advisor will have a better understanding of the risks associated with HOAs. Such an advisor or broker will analyse the risks based on the information gleaned from the directors, managing agents, MOI or the constitution, and will compare specific HOA policies designed for HOAs. The HOA should receive written advice annually from the broker or advisor shortly before policy renewal, recommending the most appropriate product while taking all of this into account.

Additional products may be recommended, such as:

• Directors and Officers (D&O) insurance
• Fidelity / Commercial crime (Per CSOS Regulation 15)
• Additional liability cover for community-owned equipment, such as gym equipment