The valuation and the proposed prescribed rules

(Updated 15 January 2025)

In this short article, we unpack the prescribed rules, pertaining to the valuation, and effect of insurance presentation. These are the prescribed management rules as set out in Schedule 1 of the regulations to the Sectional Title Schemes Management Act 8 of 2011.

In the original article written shortly after the then newly published prescribed rules, we provided opinion and commentary on some of the practical implications of implementation, which is of course no longer of concern.

We start with the AGM

Prescribed Management Rule (PMR) 17.(6) deals with the order of business at a general meeting.

Sub rule 17.(6)(j)(ii) states: approve the schedule of replacement values referred to in rule 23.(3) without amendment.

There is more to be dealt with at the AGM in respect of insurance, however, does not pertain to the valuation. We focus on the valuation aspects for purposes of this discussion.

As can be seen, the prescribed agenda thus refers to the rules pertaining to preparation for the AGM.

Prescribed Management Rules 23.(3) and 23.(4) need to be read together.

PMR 23(3) requires that a body corporate obtain a replacement valuation of all buildings and improvements to be insured at least once every three years and present the valuation at the annual general meeting (AGM).

23.(4) Requires a body corporate to prepare schedules for each AGM, indicating estimates of:

(a) The replacement value of the buildings and improvements on the common property; and

(b) The replacement value of each unit, excluding the member’s interest in the land within the scheme, with the total of these values equating to the value mentioned in sub-rule 4(a).

An important requirement is that PMR 23.(3) specifies that valuations should be undertaken “at least” every three years. We do recommend more frequent valuations for larger schemes, and particularly large schemes should consider annual valuations, or at least obtain interim valuation figures so that the building inflation impact can be more accurately determined.

The policy itself

PMR 23.(1) , with focus on sub rule 23.1(b):

23.(1) The insurance policies of the body corporate in terms of sections 3(1)(h) and

(i) of the Act –

(b) must specify a replacement value for each unit and exclusive use area, excluding the member’s interest in the land included in the scheme; provided that any member may at any time, by written notice to the body corporate require that the replacement value specified for that member’s unit or exclusive use area be increased.

This is where many portfolio managers (PMs), preparing for AGMs, go wrong. Because the insurer presents the policy schedule with a section complying with this requirement i.e. the policy schedule itself must specify a replacement value for each unit and exclusive use area, PMs tend to use this as the schedule described in PMR 23.(4). This is incorrect in our view. Addsure prepares a separate and more detailed schedule of replacement values (SRV) as an added value service, to meet all requirements. The insurer’s policy schedule list (endorsement) should be amended to reflect the properly prepared SRV, not the other way around.

The correct steps can be found on our valuation pages (see the blue button below).