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Settling claims in a Sectional Title environment

Sectional Title is quite unique in many ways. When one splits up a building with imaginary lines like borders of a country, it makes sense that the building and all improvements to common property needs to be insured as a whole. The Sectional Titles Act (STA)/ Sectional Titles Scheme Management Act (STSM Act) and supporting management rules set out some important duties and responsibilities with procedures that need to be followed.

With regard to claims, Section 37 of the STA or Section 20 of the STSM Act is clear in that the proceeds of any claim should be applied to the reinstatement of the damage caused.

This means that:

  1. Owners have no right to insist on cash in lieu of damages;
  2. Trustees should not automatically set off damages claims proceeds against outstanding levies before repairs are dealt with.

These two points are often raised. Owners with tight cash flows are usually tempted to use claim proceeds towards settlement of their own debts or financial priorities than repair their section. Some owners would rather live with old damaged carpets, a soiled ceiling and damaged cupboards and use the money for something else.  This should of course be discouraged as failure to repair damages will bring down the overall value of the building. Owners have a duty to repair their sections and the Act requires claim proceeds to be used for the purpose intended. This is sometimes difficult to manage but we often see well-managed schemes that only pay owners when proof of payment to contractors is provided or paying contractors directly.

Where owners are in arrears with levies or in dispute with fines, trustees are tempted to hold back monies, i.e. set off claim proceeds against levies owed. This is understandable, but set off should only be applied IF the owner has already had the repair done and already settled the contractor.

Remember that an owner always has rights and needs to be treated fairly however, any insurance claim issue is a matter for the trustees. The Trustees are the elected representatives of the owners, and the insurance arrangement and claims is a body corporate function.  The owner has a financial interest but in dealing with the claim he/she takes the role of witness and should assist in proving the claim.

Then there is the matter of the excess: The owner usually pays the excess where there are damages to his/her section but this depends on the specific rules of the body corporate and/or whether a special resolution has been passed making the body corporate responsible for specified damages. See previous blog article for more about excess rule 29.4  and template special resolution.


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 Johannesburg on (011) 704-3858, Durban on (031) 459-1795 or Cape Town on (021) 551-5069.