Sectional title insurance and the valuer

It is advisable for executives, trustees, or directors of a community scheme to regularly commission a professional replacement cost valuation of the buildings, aligning with the scheme’s size and nature.

The Sectional Titles Schemes Management Act 8 of 2011 (STSMA), Prescribed Management Rule PMR 23.(3) states:

A body corporate must obtain a replacement valuation of all buildings and improvements that it must insure at least every three years and present such replacement valuation to the annual general meeting.

The suggestion of at least every three years recognises the possibility of more frequent valuations, especially for structures like a large tower block that might require annual assessments. The annual replacement value adjustments for larger and more intricate risks should not be arbitrary but rather professionally examined.

Some valuers provide interim valuation figures as an additional service, a valuable resource for insurance advisors dealing with larger schemes. It is recommended that community schemes engage a qualified valuer or quantity surveyor familiar with community schemes to ensure a comprehensive valuation.

Determining the replacement value involves estimating the cost to replace buildings (contract price), professional fees, demolition costs, and VAT. A valuer should factor in inflation during the insurance year and reinstatement of the building, addressing this aspect professionally.

The writer asserts that a qualified and registered valuer or quantity surveyor, preferably experienced in sectional title matters, should perform the property valuation, with a requisite Professional Indemnity cover.

To find a suitable valuer, one can seek guidance from the managing agent or insurance advisor. Obtaining names of valuers specialising in community scheme valuations will assist in preparing the Schedule of Replacement Values (SRV).

Regarding Homeowners’ Associations (HOAs), unless their Memorandum of Incorporation (MOI) or constitution mandates a valuation, directors are not compelled to undertake one. However, the writer strongly recommends regular valuations for HOAs, as common areas and improvements are often undervalued, leading to potential underinsurance issues during claims.

When briefing the valuer, it is advised to consider specific elements such as exclusive use areas, the nature of garages, retaining walls, wooden structures, thatch coverings, swimming pools, solar panels, common area structures, and any additional structures beyond the sectional plan. Providing comprehensive information ensures a thorough valuation.

Emphasising the critical role of a valuation in the insurance process, the writer underscores the importance of investing in a professional valuer to ensure responsible and meaningful insurance advice for the scheme’s buildings.

More about the valuation and processes can be read in The Sectional Title Insurance Guide.

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