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When trade increases your risk profile

Many body corporate complexes consist of residential, office, retail shop and sometimes, a manufacturing factory sections. In principle, this is not a problem for insurers. The problem arises where the occupier of any of these non-residential sections engage in any trade that increases the insurance risk. It raises some questions around the position of the insurers and how they should deal with a claim arising from such an increased risk.

An example

A complex consists of residential sections, consulting rooms, a chemist, a clothing outlet and a furniture outlet. These are all acceptable risk types in terms of the basics Sectional title policy and the premium rate would normally not be affected.  At some stage the furniture shop section owner decides to also manufacture furniture – with the consent of the trustees. This adds woodworking risk to the existing risk portfolio which is classified as a high risk in terms of the buildings insurance. Trustees should declare this material fact to the insurers via the managing agents or insurance brokers. The insurer will note the risk and impose certain measures such as an increased claims excess or more likely, an increased premium rate as well as relevant cover restrictions. These measures will impact on the rest of the owners in the complex and such an increased risk may impact on the safety and market value of the other sections in the complex.

What happens if these procedures are not followed?  

All insurance policies contain two clauses known as the (i) “Misrepresentation, Misdescription and Non-disclosure Clause” and the (ii) “Suspension of Cover Clause.”  Using the example above where the insurers are not informed of the change in risk, especially where the activities of the risk does not comply with statutory requirements, the insurers have the right to reject any claims arising from the unit in question. Note that in terms of the “Breach of conditions Clause”, the rejection will only apply to the unit in question and not to any of the other units.

Our recommendation

Where sections are used for any purpose other than residential use, we advise that the trustees or managing agents inform themselves of the exact nature of the activities in these sections and to discuss this with the insurance brokers who are in a more qualified position to advise on the way forward.


Author: Rian Pienaar, 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 on (011) 704-3858; in Durban on (031) 459-1795 and in Cape Town on (021) 551-5069