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Occupancy Risk

Where higher risks are not disclosed, insurers reject claims. One example is where a woodworking entity was operating in a business park but the woodworking risk was not disclosed to the insurer. In the case of a fire destroying the premises, the insurer would most likely not cover the loss if the insurer had not agreed to taking on the additional risk.

Trustees need to be aware of occupancy risks and how it affects the overall insurance of the building.  The Sectional Title Act and related Prescribed Management rules provide some direction here: Refer SA 44(1)(g) and MR 68(1)(i)(v). Basically, if your registered scheme plans and rules reflect sections and related EUA’s for residential/specific use, it may not be used for any other purpose unless ‘all’ owners otherwise agree.

Standard residential buildings can’t and shouldn’t be used for commercial or business occupation. This implies that no-one may operate a business from home.

Likewise, a commercial/industrial business park is specifically designed and designated to accommodate manufacturing and storage of stock volumes; it is not conducive to residential occupation. There are also many sectional title schemes with mixed occupancy where the ground floor (street level) are designated to retail/commercial space (shops, restaurants etc.) and upper floors only for residential or perhaps office space.

Insurers are largely concerned about occupancy risk: What is going on inside the building (the section)? When the occupant runs a commercial enterprise (e.g. baking, food preparation, manufacturing, repairing or servicing for gain) it could pose an above-average material risk to the insurer. In many cases, certain stock items may cause increased fire hazards or spread of fire risk (e.g. fuels, oils, gas, paints, cleaning agents, cloth and cardboard waste, etc.) or even explosion risk (sawdust and spice dust). These circumstances must be disclosed to the insurer for the correct premium to be applied to the associated risk.

If a resident owner or tenant is a bookkeeper by trade and brings work home, or even converts a room into a study to be able to work from home, it qualifies as an acceptable low-risk scenario.  There is no increased risk to the insurer here as the owner still resides there.

Advice and guidance from a suitably qualified insurance advisor is important and highlights the need for professional advisor with sectional title expertise.


Author:  Brian Addison, Addsure

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