What insurance must a body corporate have?
A sectional title insurance schedule can look like an administrative detail until a fire, storm, burst pipe or major structural loss exposes a gap. The Sectional Titles Schemes Management Act 8 of 2011 (STSMA) makes insurance a core body-corporate duty. Trustees, managing agents and owners all need to understand what that duty does — and does not — mean.
This guide is written for South African sectional title schemes, including many Johannesburg complexes. It explains the statutory starting point in plain language. It does not replace the current Regulations, Prescribed Management Rules (PMRs), a scheme’s approved rules, policy wording, broker advice or legal advice on a particular claim.
The statutory starting point: insure the building to replacement value
Section 3(1)(h) of the STSMA requires a body corporate to insure the building or buildings and keep them insured to replacement value against fire and other risks prescribed by regulation. The body corporate is treated as having an insurable interest in that replacement value for this purpose.
Replacement value is not the same thing as the combined market value of the units. Market value reflects what buyers may pay in current conditions; replacement value asks what it would cost to rebuild the insured building after a loss. Land value, location and demand can move market prices sharply without saying much about rebuilding cost.
That distinction matters. Underinsurance can leave owners exposed to a shortfall after a serious loss, while overinsurance can put avoidable pressure on levies. The proper figure should be tested against the actual buildings, finishes, common-property infrastructure and current construction costs, rather than carried forward unquestioned from an old schedule.
What the body corporate must fund and disclose
Insurance premiums relating to the building or land are an administrative-fund cost under section 3 of the STSMA. The body corporate raises the required contributions from owners through the levy process and must pay premiums on policies it has effected.
Owners also have a specific transparency right. On written request, an owner or registered mortgagee may inspect the insurance policy effected by the body corporate and the receipt for the latest premium under Section 3(1)(s). That is a useful practical right before an annual general meeting, a sale, a financing decision or a disagreement about whether a risk is covered.
A useful request asks for more than a certificate of insurance. It should seek the current schedule, endorsements, insured values, excesses, exclusions, claims contact details and confirmation that the latest premium has been paid. The policy wording and schedule, not a verbal summary, govern the cover.
What cover is not automatic?
The statutory duty is about the building or buildings at replacement value and the prescribed risks. It is not a promise that every financial consequence of an incident is insured. Whether a policy responds to a particular event depends on its wording, endorsements, exclusions, sums insured and the facts of the loss.
Owners should not assume that the body corporate policy automatically covers:
- movable contents, personal possessions or tenant contents inside a section;
- improvements or alterations that are not adequately disclosed or insured under the scheme policy;
- alternative accommodation, loss of rent or loss of income in every circumstance;
- the excess payable on a claim; or
- damage arising from an excluded cause, poor maintenance, gradual deterioration or a failure to comply with policy conditions.
Section 14 of the STSMA recognises this gap: even where a body corporate has a valid policy, an owner may obtain insurance for damage to their section arising from risks not covered by that policy. Owners may also insure against other risks. The right mix depends on the scheme policy, the section, mortgage requirements and the owner’s own exposure.
Additional risks and the role of owners
The STSMA allows a body corporate to insure against additional risks where owners approve them by special resolution. That decision should be made with a clear record of the risk, the scope of cover, the cost, the funding effect and any insurer conditions.
The Regulations and PMRs contain important operational insurance requirements. A scheme’s approved management rules may also affect how it administers insurance. Trustees should therefore avoid treating a generic renewal checklist as a substitute for reading the current law, the scheme’s CSOS-filed rules and the actual policy.
Claims, excesses and rebuilding money
Where the body corporate receives insurance money for building damage, section 3(1)(j) requires it, subject to section 17 and mortgagee rights, to apply that money forthwith to rebuilding and reinstating the building as far as this can be done. In a major destruction scenario, section 17 creates a separate process involving the owners, registered bondholders and, in some cases, a court.
That statutory purpose is important: claim proceeds for damage to the building are not a general cash reserve. Trustees should keep a complete claim record, obtain written insurer decisions, minute material decisions and communicate the next steps to owners.
Excess allocation is a frequent source of conflict. It should not be guessed at after the loss. The applicable PMRs, the scheme’s approved rules and the policy wording need to be read together. Before renewal, trustees should obtain a written explanation of each excess, the circumstances in which it applies and the process the scheme will follow when deciding whether an owner, the body corporate or another party bears it.
An annual trustee insurance review
Trustees stand in a fiduciary relationship to the body corporate. That does not make them insurance experts, but it does mean a passive renewal can be difficult to defend where material information has changed. A documented annual review gives the trustees, managing agent and broker a better factual base for the decision.
- confirm the current replacement value and whether a professional valuation or an updated rebuilding-cost assessment is needed;
- list additions, alterations, solar installations, access-control equipment, lifts, pumps and other material changes to the property;
- review prior claims, open defects, water damage, maintenance records and insurer risk-improvement requirements;
- read exclusions, warranties, endorsements and excesses rather than relying only on the premium;
- check that the budget can meet the premium and likely excesses without an unmanaged funding shock;
- confirm who may notify a claim, what evidence must be preserved and how owners report an incident; and
- minute the information considered, advice received and decision taken.
Maintenance is part of insurance risk, not a separate administrative issue. The STSMA requires the body corporate to maintain common property in a good and serviceable state of repair, while owners must maintain their sections. A poor maintenance record can affect risk, claim outcomes and renewal terms.
Questions owners should ask before accepting the levy increase
- What is the current replacement value, when was it last independently assessed and what does it include?
- Which risks are covered, excluded or subject to special conditions?
- What are the major excesses, and what rules govern their allocation?
- Are there unresolved maintenance issues or insurer requirements that could affect cover?
- Can the body corporate provide the policy schedule, endorsements and evidence of the latest premium payment on written request?
- What additional cover, if any, should an individual owner arrange for contents, improvements, rental exposure or other risks outside the scheme policy?
Frequently asked questions
Is a body corporate legally required to insure a sectional title building?
Yes. Section 3(1)(h) of the STSMA requires the body corporate to insure and keep the building or buildings insured to replacement value against fire and other prescribed risks. The current Regulations, PMRs, approved scheme rules and policy wording must be checked for the detailed operational position.
Does body corporate insurance cover my furniture and personal belongings?
Not automatically. The statutory duty concerns the building or buildings. Contents and other personal exposures depend on the policy and on cover an owner obtains separately. Section 14 allows an owner to insure against damage risks not covered by the body corporate policy.
Can an owner inspect the body corporate insurance policy?
Yes. On written request, section 3(1)(s) requires the body corporate to produce the policy and the receipt for the latest premium to an owner, registered mortgagee or an authorised person.
Who pays the excess on a sectional title insurance claim?
There is no one-size-fits-all answer. The applicable PMRs, approved scheme rules and policy wording must be read with the facts of the claim. Trustees should obtain and apply a clear written basis for excess allocation rather than deciding it informally after a loss.
Final takeaway
Body corporate insurance is a statutory responsibility, but compliance is not simply a matter of paying a renewal premium. A well-run scheme keeps the building insured to a supportable replacement value, understands the policy before a claim, maintains the property, documents its decisions and makes the insurance information available to owners. That is the best foundation for a resilient complex when a real loss occurs.
For specialist insurance risk guidance for a residential complex, including a structured review of assets, exposure information and risk-improvement priorities, visit insurance.net.za.
Important: This article is general legal and insurance information, not advice for a particular scheme, owner or claim. Insurance obligations arise from the STSMA, its Regulations and PMRs, and approved scheme rules read together. Confirm the current law, your scheme’s CSOS-filed rules and the applicable policy wording with appropriately qualified advisers.
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