Owners and the schedule of replacement values

(Updated 12 December 2024)

A schedule of replacement values (SRV) needs to be prepared, by the body corporate, ahead of each AGM, so that owners can agree and vote on the sums insured of the buildings as well as their individual unit sums insured.

Prescribed management rules (PMRs) stipulate that an owner may increase the sum insured for their unit or EUA at any time. The “additions” column is used to record any requests for additional cover made by an owner. PMRs 23.1(b) and 23.2(a) refer.

The body corporate is responsible for determining the replacement value of the buildings, typically by arranging a professional valuation which needs to occur at least every three years. Refer (PMR 23.(3)). Such valuations are generally based on the standard finishes specified by the developer. If an owner has made further improvements to their section, they can request an increase in the sum insured accordingly. For instance, if an owner believes the replacement value assigned to their section is too low, particularly due to subsequent upgrades or enhancements, they should submit a written request (preferably via email) to the trustees or managing agent for the adjustment.

The cost of insuring an additional R100,000 would be approximately R100 per annum, less than R10 per month for every R100,000 of additional cover.

When an owner applies for a bond from a financial institution or bank, they typically authorise the bank to insure the buildings. In such cases, the bank often requests that the insured sum matches the bond amount, which is frequently higher than the replacement value. The insurer treats this as an additional amount recorded in the “additions” column, as the bank’s request effectively by proxy, the bank now having a bonded interest in the policy. If the owner disagrees with their bank’s actions, the owner should engage with their bank and seek their adjustment and instruction to the broker/insurer.

Thus, the amount reflected in the “additions” column arises either from the owner’s direct request or from the owner’s bank acting on their behalf.

A common mistake made by trustees or managing agents is to include improvements to exclusive use areas (EUAs), such as swimming pools or awnings, in the “additions” column, thereby increasing the unit’s insured value. Technically, this is incorrect, as EUAs are common property. Adding common property improvements to a single unit can distort the unit’s individual value as well as dilute the value of other units. A separate recovery mechanism should be used for insuring improvements to EUAs such as via the EUA contribution.