Property Management, Property Rentals and Property Financial Services in South Africa

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The insurance implications of the new CSOS and STSM Acts

The CSOS and STSM Acts were promulgated on the 7th October 2016. Three important insurance provisions have been legislated and are explained in further detail below for awareness and compliance purposes:

Fidelity insurance (CSOS Act): Going forward all community schemes will be required to carry fidelity insurance covering the value of the property’s reserve funds plus 25% of the administrative fund (annual budgeted levy income). This insurance will safeguard the community scheme from the risk of fraud which has been endemic in the sector, due to the quantum of funds involved. The EAAB fidelity insurance service has been widely perceived as extremely slow and ineffective hence the provision for additional cover.

Trafalgar has an existing fidelity insurance policy of R20m (per claim) which the CSOS Ombud has advised is sufficient to cover Trafalgar-managed community schemes for this provision. This is an important value-add for Trafalgar’s clients considering the fidelity insurance is included within the standard monthly management fee and easily achieves legislative compliance without any additional costs.

homeowners insurance

Subsidence cover (STSM Act): This provision applies only to Sectional Title buildings. Subsidence cover is now specified as a requirement for all such buildings. Most sectional title insurance policies do already provide limited subsidence cover which arguably covers this requirement. Buildings which require increased cover based on specific risks and structural or site issues would require a professional geotechnical survey (at the scheme’s cost) and potentially engineer-supervised remedial building works if structural issues are identified. Extended subsidence cover is typically very expensive and narrowly specified; expert advice from engineers, geotechnical specialists and insurance brokers familiar with this cover would be relevant and important.

Insurance valuations (STSM Act): This also applies only to Sectional Title buildings. Professional insurance replacement valuations are now required every three years to more accurately quantify the necessary sum insured under the property’s insurance policy. Replacement values are different to property sale values and include construction costs, professional fees, demolition costs, rubble removal and alternative accommodation costs. By obtaining a professional replacement valuation, the risk of building under-insurance will be reduced and thereby the application of the “average” rule where a claim would be reduced by the proportion of a building’s under-insurance.

Trafalgar has the above provisions covered for all Trafalgar clients by firstly including adequate fidelity insurance cover based on an existing fidelity insurance policy, secondly including limited but compliant subsidence cover in all Sectional Title insurance policies brokered by Trafalgar Financial Services, and thirdly by including a free initial professional insurance replacement valuation with all new TFS insurance policies. After the initial valuation TFS also has a panel of preferred valuers who will offer significantly reduced replacement valuation costs based on the TFS relationship and volumes.

For any additional information or to see links to the source legislation, please visit www.trafalgar.co.za/newlegislation.

Alternatively please email any questions to michaels@trafalgar.co.za who will gladly assist further.

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