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What you need to know about sectional title valuations in 2024

The cornerstone of ensuring the protection of one’s buildings lies in accurately determining their replacement values.

Prescribed Management Rules 23.(3) and 23.(4) provide clear guidance on the necessary steps to be taken:

23.(3) Mandates that a body corporate obtains a replacement valuation of all buildings and improvements to be insured at least every three years, presenting this 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).

These rules are interdependent. Note that PMR 23.(3) specifies that valuations should occur “at least” every three years. We advocate for more frequent valuations for larger schemes, and particularly large schemes should consider annual valuations.

In 2024, there is a compelling rationale for this. Presently, some insurers face capacity constraints. If replacement costs are artificially inflated, the total sum insured for the buildings may surpass certain insurers’ or underwriting managers’ capacity thresholds. This could limit the scheme’s ability to obtain competitive quotes or narrow down options. Therefore, it’s crucial for brokers to accurately align valuations with the Schedule of Replacement Values (SRV).

Schedule of Replacement Values

Another pertinent aspect is the SRV. We’ve been promoting the adoption of a standardised SRV format, which offers owners comprehensive information to evaluate the adequacy of their insurance coverage. You can view a sample in the AGM handout. See the sample in the AGM handout.

The valuation summary in our format aims to provide owners with their basic building sum insured per square meter, excluding items like professional fees, demolition costs, and VAT. Similarly, owners are informed of their section sum insured without including common area items like parking decks and clubhouses. While not perfect, this method has proven effective.

The summary of the SRV valuation now plays a crucial role during the two years between valuation cycles (for most schemes). Trustees should incrementally adjust the initial valuation each year until the next valuation cycle in year three, using official building inflation figures or those obtained from the valuer.

Download our SRV booklet.

Preparation is key

Insurance advisors and managing agents involved in this process should schedule valuations well in advance of insurance renewal dates to ensure accurate insurance sums are available at policy renewal time. Within our ATON database system, we incorporate basic valuation data into the insurance renewal process, with additional valuation data available.

Valuation practices and firms specialising in sectional title properties have enhanced their systems to align with recent amendments to the Act. Addsure collaborates closely with these valuation specialists to ensure valuations are conducted correctly within the community scheme environment. A list of participating valuers can be found here.

Managing agents should establish a cycle of scheduled valuation dates with valuers to ensure a well-managed flow of valuations and policy renewals throughout the year.

We encourage knowledgeable and specialised brokers to assist the body corporate in preparing a meaningful SRV, rather than simply photocopying the so-called PQ schedule from the most recent policy. These are distinct documents, and the insurance policy schedule merely meets the requirements of PMR 23.(1)(b), which necessitates reflecting owner unit sum and EUA replacement values.

 

Author:  Mike Addison

Addsure is a leading sectional title insurance broker. Get fit and proper advice from advisors who understand sectional title.