The Sectional Titles Act (section 37 and the new Sectional Titles Schemes Management Act (section 20) states that it is a function of the body corporate to pay the premiums. This makes it clear that if a body corporate does not have money, it must find it, i.e. they must raise a special levy.
This disallows trustees in making other priority payments ahead of insurance premium or putting the insurance premium payment on hold until funds become available.
The premium, in the case of building cover, is defined as the payment for cover determined by applying a rate of cover to a sum insured. An annual premium is therefore determined which can normally be paid monthly, quarterly or annually in advance.
Present prescribed rules state that the buildings and all improvements to common property must be insured to full replacement value subject negotiation of premium, excess and rate as long as it in the best interest of the owners. We interpret this to mandate the trustees to consider which excess structures can be used to manage the premium in the best interest of all the owners.
Prescribed rules also mandates the trustees to recover the premium from owners with additional sums insured applied to their sections. Owners may request additional cover due to improvements made or where the owner feels that the arranged cover (as per the schedule of replacement values) is inadequate. Many owners have, by way of agreement with their banks when signing for their bonds, allowed the banks to increase sums insured in line with money lent. Addsure can assist by providing debit advices so that managing agents or bookkeepers do not forget to recover these additional premiums from such owners.
Also, many owners improve their exclusive use areas, e.g. swimming pool, paving, etc. An additional premium for this is normally recovered by way of a monthly exclusive use area contribution or directly. Remember, exclusive use areas are not parts of sections but common property. These premiums should also be recovered from the benefitting owners, one way or another.
The payment of premium is important; not dealing with this issue properly could be the highest risk of all and in conflict with an Act of parliament and therefore in contravention of the law.
Author: Mike Addison
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