How to deal with illegal structures

[Updated: 30 May 2025]

Illegal structures erected by sectional title owners remain a persistent challenge in community schemes. Let’s explore a common example and unpack the implications:

The scenario

An owner enclosed their balcony, effectively creating an extra living area, without trustee approval and without submitting building plans in terms of the National Building Regulations. This rendered the extension illegal.

When a storm later caused damage to the section, including the unapproved balcony, the owner bypassed the trustees and submitted an insurance claim directly to the body corporate’s broker. The claim was processed and settled by the insurer.

The trustees only became aware of the claim when asked to authorise payment to the owner’s contractor. Given the ongoing dispute, the trustees refused and questioned the broker’s actions.

This situation raises several important questions:

1. Was the claim valid under the body corporate’s insurance policy?

Most insurance policies include clear conditions requiring compliance with the National Building Regulations and related legislation. For example, many policies include clauses such as:

“You must take all reasonable steps to ensure that the insured property complies with the National Building Regulations and Building Standards Act (No. 103 of 1977)… and ensure that plans were submitted to and approved by the local authority at the relevant time of construction.”

This makes it clear that non-compliance, such as constructing without approved building plans, can be grounds for repudiation of any related claim. In this example, the unauthorised balcony should not have been covered. Insurers would be within their rights to reject or reverse the payout for the non-compliant structure.

2. Can the insurer recover the settlement amount?

Yes. Where a claim is settled in breach of a policy condition, such as non-compliance with the building regulations, the insurer is usually contractually entitled to reclaim the payment relating to the illegal structure under the Breach of Conditions or Non-Disclosure clauses.

3. Was the broker at fault?

In this case, the broker was not aware of the illegal extension and was not informed by the trustees or the managing agent. The broker, however, should have informed the managing agent or trustees and should have had the claim attested, even if by email. The lines are often blurred here, especially where it is argued by some managing agents that owners must deal with the broker directly. Under those circumstances, the broker would not be at fault.

4. If the insurer reclaims the settlement, who pays for the repairs?

Responsibility will likely fall on the owner. The body corporate cannot be expected to fund repairs to an unauthorised structure that breaches statutory requirements or policy terms.

This also highlights a procedural failure. Prescribed Management Rule 10 (PMR 10) under the Sectional Titles Schemes Management Act requires that legal documents, such as claim forms, must be signed by two trustees or one trustee and the managing agent. In this case, that did not occur.

The insurer arguably acted on an unauthorised document, further underlining the importance of correct procedures. For this reason, brokers should never accept insurance claims directly from owners without trustee or managing agent authorisation.

Key takeaways

This example highlights:

• The importance of compliance with the National Building Regulations as a policy conition.
• The risk of repudiation or recovery of claims relating to illegal structures.
• The need for adherence to PMR 10 to protect trustees and the scheme, and/or a clear claims procedure for owners of the scheme to follow.
• Why brokers should only process claims through recognised, authorised channels.

By ensuring compliance and following the correct process, schemes and their trustees can avoid costly disputes and uphold the integrity of their insurance policies.