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Owners and the Schedule of Replacement Values

Prescribed rules provide that an owner may, at any time, increase the sum insured of his or her unit; the additions column is where an owners request for additional cover is added.

The trustees determine the replacement value of the buildings as a whole, usually by arranging a professional valuation. Such valuation is normally based on the standard finishes per developer specifications. Thus, if an owner has made further improvements to his or her section, he or she can have the sum increased accordingly. For example, if the owner feels that the value determined for his or her unit is too low, especially where further upgrades have been made, the owner should send an instruction in writing (preferably email) to the trustees or managing agent requesting such increase.

The premium on an extra R100 000 insured would be as little as R100 per annum, i.e. less than R10 per month perR100 000 cover.

When an owner applies for a bond from a financial institution or bank, they enter into an agreement and usually give the bank the power to insure the buildings. The bank will usually request that the sum insured match the amount of the bond and this is often much higher than the replacement value. The insurer will treat this as an additional amount for the additions column as the bank’s request is, in reality, the owner’s request by proxy.

Thus, the amount in the additions column is either at the owner’s request or the owner’s bank request.

A mistake often made by trustees or managing agents is to add improvements to owners EUA (Exclusive Use Areas) such as swimming pools or awnings, as additions and so increase the unit value. Technically, this is incorrect as the EUA is common property and by adding the common property improvement to the one unit, it can potentially distort the individual unit value. A separate recovery should be made for EUA improvements.

More about the Schedule of Replacement Values can be found here.


Author : Mike Addison

Contact Addsure – The Leaders in Sectional Title Insurance – for fit and proper advice from advisors who understand sectional title. Contact us in Johannesburg on (011) 704-3858; in Durban on (031) 459-1795 and in Cape Town on (021) 551-5069