Replacement values and legislation

(Updated: 6 January 2025)

This article unpacks the legislation and prescribed rules related to replacement values, summarising them in layman’s terms:

Section 3.(1)(h) of the Sectional Title Schemes Management Act 8 of 2011 states that a body corporate must insure the building(s) and keep them insured to their replacement value against fire and other prescribed risks.

Regulation 3 stipulates the prescribed items to be insured, while Prescribed Management Rule (PMR) 23.(1) specifies the policy requirements, including that it:

• Must detail the replacement value of each unit and exclusive use area (excluding the member’s interest in the scheme’s land).
• Allows members, by written notice, to request an increase in the replacement value of their unit or exclusive use area.

PMR 23.(3) and 23.(4) further elaborate:

• 23.(3) – A body corporate must obtain a replacement valuation of all buildings and improvements at least every three years and present this valuation at the annual general meeting (AGM).
• 23.(4) – Before each AGM, the body corporate must prepare schedules estimating:
  • (a) The replacement value of the buildings and common property improvements.
  • (b) The replacement value of each unit, excluding the land. The total of these values must equal the value in sub-rule 4(a).

5-point summary:

1. The STSM Act requires buildings to be insured at replacement value.
2. Insurance policies must reflect the replacement value of each unit and exclusive use area.
3. Replacement valuations must be done at least every three years.
4. These valuations must be presented at the AGM.
5. Schedules detailing unit values and their total must be prepared for each AGM.

A PDF explainer booklet on the schedule of replacement values and legislation is available via the blue button below.