On 7 October 2016, the Sectional Titles Schemes Management Act (2011) came into force, along with its prescribed regulations, management and conduct rules.
One such management rule deals with valuations for insurance purposes.
Management Rule 23(3) prescribes that bodies corporate must obtain a valuation to determine the replacement values of the buildings and improvements, at least, every 3 years, and present same at the following AGM:
23(3):- A body corporate must obtain a replacement valuation of all buildings and improvements that it must insure at least every three years and present such replacement valuation to the annual general meeting.
At Intersect, we have advocated this practice from long before the promulgation of the new acts, and, in certain circumstances, even advise valuations on an annual basis.
We do this to ensure that our clients’ buildings’ replacement values, at any point in time, are up to date and accurate, so as to mitigate disputes should a claim be registered, and the Insurer happen to question the values applied.
The duty to insure the buildings and improvements, plus any additional items as approved at an AGM, at the correct values, is that of the Trustees, however, few trustees are qualified to determine replacement values, and for this we advise the services of professional valuers, not only to ensure correct values, but also because the valuers carry professional indemnity insurance, in case the values are tested and found to be incorrect.
As mentioned above, we sometimes advise annual valuations, as opposed to the minimum 3 year period, as many of the buildings we manage exceed R500m in replacement value, and any error, in between valuations, could be material and lead to averages (essentially under-insurance) being applied by the Insurer, and ultimately, losses for the members of the body corporate.
Furthermore, the cost to conduct the valuations, annually, can be negotiated and factored into the annual budget of the scheme.