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Replacement values and legislation

Section 37 of the Sectional Titles Act / Section 3 of the Sectional Titles Scheme Management Act deals with the topic of insurance and full replacement value

Its significance is encapsulated in the fact that it is statutory, thus neither a general meeting nor set of trustees can alter that requirement. The buildings must always be insured to full replacement value.

Occasionally, there is an attempt at Annual General Meetings to reduce the replacement values in order to save insurance premium costs.

Indeed, replacement values can be reduced; as long as a professional valuation does not state a higher figure. If in doubt, have the buildings valued professionally.

Rules can be amended by owners but only parliament can change the Act. This is a good thing as it prevents owners from putting themselves as well as others, at financial risk.

We believe that all buildings should be valued professionally by a qualified valuer or QS, at least every 3-5 years. If the building is small, say a duet or even 3 units, all the owners can unanimously determine replacement value.

Fixed property is usually an individual’s main asset and unfortunately, its insurance is often left in the hands of trustees and management who sometimes pay very little attention to determining replacement value.

Knowing what The Act determines with regards to replacement values should be sufficient for trustees to override any proposed or carried resolution aimed to reduce the sum insured and to be placed inadequately below replacement value. The Act is the authority; trustees need to see to it that the function of insuring to replacement value is carried out.


Author:  Mike 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