The legal framework behind sectional title 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, together with its Regulations and Prescribed Management Rules, 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 adds a further layer: dispute resolution and a specific fidelity-insurance requirement that applies to every community scheme.
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 Sectional Titles Schemes Management Act 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.
Sectional Titles Schemes Management Act 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.
Sectional Titles Schemes Management Act 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: Sectional Titles Schemes Management Act sections 3(1)(h)-(k) and 14; Sectional Titles Schemes Management Act 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. Community Schemes Ombud Service Regulation 15 requires every community scheme, including every sectional title scheme, 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.
Community Schemes Ombud Service 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: Community Schemes Ombud Service 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 Community Schemes Ombud Service 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: Sectional Titles Schemes Management Act sections 3 and 7 (functions and duties of the body corporate and trustees); Community Schemes Ombud Service Act 9 of 2011 (adjudication).
Read our directors' and officers' insurance guide →
Freehold estates and share block schemes are governed separately
Everything set out above flows from the Sectional Titles Schemes Management Act, which applies only to a sectional title scheme. A freehold residential estate governed by a homeowners association is a different legal structure entirely: owners hold full title to their erven and insure their own dwellings, while the association insures the common property and shared infrastructure it owns or controls. No statutory buildings requirement, prescribed risk schedule, minimum liability limit or three-year valuation cycle applies to it.
A share block scheme is different again. There the company owns or leases the entire immovable property and the resident holds shares in that company together with a use agreement, rather than title to a unit, so the company carries the insurable interest in the whole building. Section 19 of the Share Blocks Control Act 59 of 1980 requires the directors to ensure that property is insured in accordance with the resolutions passed by the members, and makes them jointly and severally liable to compensate the company or a member for damage suffered if they fail to do so.
The one requirement all three structures share is fidelity insurance under Community Schemes Ombud Service Regulation 15, because all three are community schemes. If the scheme you are reviewing is an estate or a share block company rather than a sectional title scheme, the obligations start with its own constitution, Memorandum of Incorporation or articles.
Source: Sectional Titles Schemes Management Act 8 of 2011 (application); Share Blocks Control Act 59 of 1980 section 19; Community Schemes Ombud Service Act 9 of 2011 and Regulation 15.
Read our homeowners association insurance guide →
COMMON QUESTIONS
Body corporate and sectional title insurance questions, answered clearly.
What does the Sectional Titles Schemes Management Act 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 Sectional Titles Schemes Management Act 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 financial intermediary, 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 Community Schemes Ombud Service 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.
Does this guide apply to a homeowners association or freehold estate?
No. The Sectional Titles Schemes Management Act applies only to sectional title schemes. A freehold estate governed by a homeowners association works differently: owners insure their own dwellings and the association insures the common property and its own liabilities, with obligations set by its constitution or Memorandum of Incorporation. Only the Community Schemes Ombud Service Regulation 15 fidelity requirement applies to both. Our homeowners association insurance guide covers that structure in full.
Can a body corporate review its insurance before renewal?
Yes. A review before renewal can identify missing records, outdated values, material maintenance issues, gaps against the statutory requirements set out above, and changes to the scheme that should be understood before insurance terms are sought.
