[2025 update]
The obligation for sectional title schemes to maintain proper building insurance remains one of the most critical legal and fiduciary duties of a body corporate.
Legislative foundation
Both the Sectional Titles Schemes Management Act, 2011 (STSMA), specifically subsections 3(1)(h) and (k), and the now-repealed Sectional Titles Act, section 37, clearly state that it is a function of the body corporate to insure the buildings to replacement value and pay the premiums. It is nothing new that maintaining the insurance and paying the premium is a statutory requirement.
In simple terms, if a body corporate does not have sufficient funds to pay the insurance premium, it needs to raise them, usually through a special levy. Trustees may not delay or prioritise other expenses ahead of the insurance premium. Insurance is not optional; it’s a legal requirement and a cornerstone of responsible scheme management.
Premiums, rate, and excess
The insurance premium is the cost of cover, mainly determined by applying the insurer’s building rate to the scheme’s sum insured, typically the full replacement value of all buildings and improvements. Annual premiums are usually set and may be payable monthly, quarterly, or annually in advance, depending on the policy arrangement.
Regulation 3 now sets out risks, over and above fire, which must be covered against. Management Rule 23 provides more detail on how.
Additional sums insured
Where owners make improvements to their sections which affect the replacement values of those sections, owners may increase their unit sums insured by simply requesting the body corporate to do so. The body corporate will usually recover the additional premium from that owner. (PMR 23.(2)(a)).
Also, where owners take out mortgage bonds, a bondholder (bank) will usually insist that a section’s insured value be increased in line with its loan exposure. We would treat premium recovery similarly.
Addsure assists trustees and managing agents by issuing debit advices and tracking these additional amounts, ensuring that schemes remain fully reimbursed for owner-specific cover extensions.
Exclusive use areas (EUAs)
Exclusive Use Areas are not part of individual sections; they form part of common property. When owners make improvements to their exclusive use areas, such as adding a pool, deck, pergola, or paving, the additional insurance premium needs to be identified so that it can either be recovered separately from the owner or considered when recovering the exclusive use area contribution.
Failing to account for these can leave the scheme underinsured or unfairly subsidise individual owner improvements.
Why timely premium payment matters
Non-payment or delayed payment of premiums can have serious consequences
- Lapse of cover in the event of non-payment.
- Uninsured risks that could lead to financial disaster following a fire, flood, or storm.
- Personal liability exposure for trustees who fail in their statutory duty.
The payment of premiums is non-negotiable. Neglecting this duty is one of the greatest risks a body corporate can face.
Summary
The takeaway for 2025 is that trustees need to treat insurance premium payments as priority expenses, ensuring timely settlement, transparent recovery from owners where applicable, and prudent management of excess structures. Addsure continues to support managing agents and trustees in maintaining full compliance and protecting their schemes’ most valuable assets.
Author: Mike Addison
Addsure is a leading sectional title insurance broker. Get fit and proper advice from advisors who understand sectional title.