The legal framework behind sectional title and HOA insurance
Two Acts, read together, govern most sectional title insurance decisions. The Sectional Titles Act 95 of 1986 created the register: it divides a building into sections and common property, and gives each owner separate title to a section together with an undivided share in the common property, proportional to their participation quota. The Sectional Titles Schemes Management Act 8 of 2011 (STSMA), together with its Regulations and Prescribed Management Rules (PMR), took over the day-to-day management of the scheme, including the body corporate's insurance obligations. The Community Schemes Ombud Service Act 9 of 2011 (CSOS Act) adds a further layer: dispute resolution and a specific fidelity-insurance requirement that applies to sectional title schemes and home owners associations alike.
Common property is not a vague idea. It is everything within the scheme that is not registered as part of a section, from the roof, structure, foundations and boundary walls to driveways, gardens, perimeter security, lifts, pools and shared plant. Owners hold an undivided share in it; the body corporate, acting through its trustees, is the party responsible for insuring, maintaining and managing it. Exclusive use areas, such as an allocated parking bay or garden, remain part of the common property in law unless formally transferred, and still need their own specified replacement value.
Source: Sectional Titles Act 95 of 1986; Sectional Titles Schemes Management Act 8 of 2011 and Regulations; Community Schemes Ombud Service Act 9 of 2011.
Buildings insurance: the body corporate's statutory duty
Section 3(1)(h) of the STSMA is direct: the body corporate must insure the building or buildings and keep them insured to their replacement value against fire and such other risks as may be prescribed. It may insure against further risks by special resolution of the owners (section 3(1)(i)), must apply any insurance proceeds to rebuilding and reinstating the damaged buildings (section 3(1)(j)), and must pay the premiums (section 3(1)(k)). Section 14 allows an individual owner to insure separately for risks to their own section that the body corporate's policy does not cover, without limiting their right to insure other risks too.
STSMA Regulation 3 prescribes the minimum risks a buildings policy must address, beyond fire. The Prescribed Management Rules then set out how that cover must be structured: a replacement value must be specified for every unit and exclusive use area, an 'average' clause may only apply to individual units and never to the buildings as a whole, and the policy must remain enforceable in favour of a registered mortgage bondholder unless the bondholder is given at least 30 days' notice. A professional replacement valuation is required at least every three years, with a replacement-value schedule presented at every annual general meeting, an obligation that is easy to let lapse and expensive to have overlooked at claim stage.
STSMA Regulation 3 - the minimum prescribed risks:
- Lightning, explosion and smoke
- Riot, civil commotion, strikes, lockouts, labour disturbances or malicious damage connected with a political organisation
- Storm, tempest, windstorm, hail and flood
- Earthquake and subsidence
- Water escape, including the bursting or overflowing of water tanks, apparatus or pipes
- Impact by aircraft and vehicles
- Housebreaking or any attempt at housebreaking
Source: STSMA sections 3(1)(h)-(k) and 14; STSMA Regulation 3; Prescribed Management Rule 23(1)-(5).
Liability insurance for the common property
A scheme's common property is used by owners, tenants, visitors, contractors and delivery staff every day, and Prescribed Management Rule 23(6) makes the consequence explicit: the body corporate must take out public liability insurance to cover its liability for bodily injury, death or illness of a person on or in connection with the common property, and for damage to or loss of property arising from an occurrence connected with the common property. Members set the amount in general meeting, but it may not be less than R10 million for any one claim and in total for any one period of insurance, or such higher amount as the Minister may prescribe.
In practice, this is the cover that responds to a fall on a wet common walkway, an incident at a gate or boom, a falling branch from a tree on common property, a swimming-pool injury or a lift malfunction. It sits alongside, but is legally distinct from, any liability insurance a service provider or contractor carries in its own right.
Source: Prescribed Management Rule 23(6).
Read our public liability insurance guide →
Fidelity and crime insurance: guarding the scheme's funds
Trustees, managing agents and their staff routinely control levy income, reserve funds and body corporate bank accounts. CSOS Regulation 15 requires every community scheme, including a home owners association, to insure against the loss of money belonging to it, or for which it is responsible, through the fraud or dishonesty of an 'insurable person' - a scheme executive, an employee or agent with control over the scheme's money, a managing agent, or a contractor or employee acting under a managing agent's direction with access to those funds.
The minimum cover is not a matter of guesswork. It must equal the scheme's investments and reserves at the end of its last financial year, plus 25 per cent of its operational budget for the current financial year. The policy must pay within a reasonable period once reasonably satisfactory proof of loss has been provided, and it may not require criminal or civil proceedings to be brought or completed against the insured person before payment is made. Prescribed Management Rule 23(7) works alongside this requirement, obliging the body corporate to insure against loss of its funds through the fraud or dishonesty of a trustee, managing agent, employee or other agent, in an amount set by the owners in general meeting.
CSOS Regulation 15(3) - the minimum fidelity cover formula:
- The scheme's investments and reserves at the end of its last financial year, plus
- 25 per cent of the scheme's operational budget for the current financial year
Source: CSOS Regulation 15(1)-(5); Prescribed Management Rule 23(7)-(8).
Trustee liability insurance: protecting the people who serve
Fidelity insurance responds to fraud and dishonesty. It does not respond to an honest but costly mistake. Trustees carry real fiduciary and statutory duties: keeping proper financial records, taking defensible insurance and valuation decisions, running annual general meetings correctly, maintaining common property and enforcing scheme rules. A trustee who is alleged to have breached those duties, made a negligent decision, mismanaged funds, failed to insure the scheme adequately, or been the subject of a dispute referred to CSOS adjudication can face a personal liability claim, regardless of whether any dishonesty is alleged.
Trustee liability insurance, sometimes described as management liability cover, is designed to respond to exactly that gap - defence costs, settlements and judgments arising from an alleged wrongful act committed while acting as a trustee. It is a close relative of directors' and officers' insurance, and volunteer trustees are often unaware of how exposed they are without it.
Source: STSMA sections 3 and 7 (functions and duties of the body corporate and trustees); CSOS Act 9 of 2011 (adjudication).
Read our directors' and officers' insurance guide →
Home owners associations: a different structure, the same underlying risk
A home owners association is not a sectional title scheme, and the STSMA does not apply to it. Instead, an HOA is usually a common-law association governed by its own constitution, or a non-profit company (previously a section 21 company) governed by a Memorandum of Incorporation, with insurance obligations set out in that founding document and in owner resolutions rather than in prescribed rules. Owners generally insure their own dwellings; the HOA carries responsibility for the common property and shared infrastructure it owns or controls - roads, gates, clubhouses, parks, entrance features, sports facilities, security infrastructure and, in some cases, servitudes over municipal land.
Two gaps deserve particular attention. First, HOA constitutions and MOIs frequently say far less about director or trustee indemnity than sectional title legislation does, leaving HOA directors more exposed than their sectional title counterparts unless dedicated trustee liability cover is arranged - a non-profit company structure also brings the HOA's directors within the ambit of the Companies Act 71 of 2008. Second, because insurers collect premium only on the value of the common property rather than the whole scheme, under-insurance and 'average' clauses tend to bite harder in the HOA environment, making an accurate, independent valuation of common infrastructure especially important. CSOS Regulation 15's fidelity insurance requirement, and its minimum-cover formula, applies to HOAs in the same way it applies to sectional title schemes.
Source: HOA constitution or Memorandum of Incorporation; Companies Act 71 of 2008 (non-profit companies); CSOS Regulation 15.
COMMON QUESTIONS
Body corporate, sectional title and HOA insurance questions, answered clearly.
What does the STSMA actually require a body corporate to insure?
Section 3(1)(h) of the Sectional Titles Schemes Management Act requires the body corporate to insure the buildings to their replacement value against fire and other prescribed risks (set out in STSMA Regulation 3), to apply any proceeds to rebuilding, and to pay the premiums. Prescribed Management Rule 23(6) separately requires public liability insurance for the common property. The precise scope of any cover in force is always determined by the policy wording, schedule and insurer's underwriting decision.
What is 'common property' in a sectional title scheme?
Common property is everything in the scheme that is not registered as part of an individual section - structure, roof, driveways, gardens, boundary walls and shared plant, among other things. Owners hold an undivided share in it, proportional to their participation quota, and the body corporate is responsible for insuring and maintaining it. Exclusive use areas remain part of the common property in law unless formally transferred.
How often must a body corporate value its buildings, and who should do it?
Prescribed Management Rule 23(3) requires a professional replacement valuation at least every three years, with replacement-value schedules for the buildings and each unit presented at every annual general meeting under rule 23(4). A suitably qualified valuer or quantity surveyor, engaged independently of the insurer or broker, is the recommended approach.
What is the 'average' clause, and why is it restricted?
An average clause reduces a claim payment in proportion to any under-insurance. Prescribed Management Rule 23(1)(c) restricts its application to individual units and exclusive use areas, so it cannot be applied to the buildings as a whole - reinforcing why accurate, scheme-wide replacement values matter.
How much public liability cover must a body corporate carry?
Prescribed Management Rule 23(6) requires public liability insurance for injury, illness or property damage connected with the common property, in an amount set by owners in general meeting but not less than R10 million for any one claim and in total for any one period of insurance, or any higher amount the Minister may prescribe.
What is fidelity insurance, and how is the minimum amount calculated?
Fidelity insurance, required under CSOS Regulation 15 (and, for sectional title schemes, alongside Prescribed Management Rule 23(7)), protects the scheme's funds against fraud or dishonesty by a trustee, employee, agent or managing agent. The minimum cover equals the scheme's investments and reserves at the end of its last financial year, plus 25 per cent of its current operational budget.
What does trustee liability insurance cover that fidelity insurance does not?
Fidelity insurance responds to fraud and dishonesty. Trustee liability insurance (sometimes called management liability cover) is designed to respond to allegations of a different kind - an honest but negligent decision, a breach of fiduciary duty, or mismanagement - covering defence costs, settlements and judgments arising from an alleged wrongful act, subject to the policy wording.
How does HOA insurance differ from sectional title insurance?
A home owners association is governed by its own constitution or Memorandum of Incorporation rather than the STSMA. Owners typically insure their own dwellings, while the HOA is responsible for common property and shared infrastructure. CSOS Regulation 15's fidelity insurance requirement still applies to HOAs, but statutory buildings and public liability requirements that apply to sectional title schemes do not automatically apply in the same form - the HOA's own governing documents and resolutions are the starting point.
Do HOA directors need separate liability cover?
Often, yes. HOA constitutions and Memoranda of Incorporation frequently say less about director indemnity than sectional title legislation provides for trustees, and directors of a non-profit company are also subject to the Companies Act 71 of 2008. Reviewing the founding documents for indemnity provisions, and considering dedicated trustee or director liability cover where they are silent or inadequate, is a standard part of an HOA insurance review.
Can a body corporate or HOA review its insurance before renewal?
Yes. A review before renewal can identify missing records, outdated values, material maintenance issues, gaps against the statutory or constitutional requirements set out above, and changes to the scheme that should be understood before insurance terms are sought.
