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Insurance can be a contentious issue in community housing schemes – and especially in layered estates that have both freehold and sectional title (ST) components.
“In such schemes,” says Andrew Schaefer, MD of leading property management company Trafalgar, there is usually a Homeowners’ Association (HOA) that manages the overall community and requires insurance for the common property and infrastructure, but does not insure the individual freehold homes in the estate.
“At the same time, each ST development inside the estate has its own body corporate and trustees who are required to insure all buildings and improvements as well as the common property in their developments, with the joint premiums being paid by owners as part of their ST levies. This is a requirement of the Sectional Title Schemes Management Act (STSMA).”
As a result, he says, it can become quite complicated to work out who pays what for the various insurance policies needed to comply with all the legal requirements and, more importantly, ensure that there are no overlaps or gaps that would result in owners not having full coverage in the event of damage or disaster.”
“However, it does need to be unravelled – and clearly set out and communicated to every owner in the scheme, freehold or ST, so that they understand where their funds are going and whether they need to take out any additional coverage to insure their own properties or belongings. And to make it easier, many large estates are now appointing a single broker to handle both HOA and BC policies for consistency and easier claims co-ordination.”
In general, says Schaefer, the HOA insurance policy will cover things that are shared and used by all owners in the layered estate, including the residents of any ST complexes. Typical inclusions are roads, pavements, streetlights, perimeter walls, electric fencing, access control systems, guardhouses, communal gardens, parks, golf courses, pools and clubhouses.
“The HOA policy will usually also provide public liability cover for the HOA as a legal entity and directors’ and officers’ liability cover for the HOA board, and the premiums will be paid by all residents of the estate, via their HOA levies.
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“Those who own freehold homes within the estate will, however, need to arrange their own insurance for these homes (HOC) as well as short-term insurance for their household contents, and pay the premiums for these directly to their own banks or insurers.”
Meanwhile, he says, the policy for each ST development inside the estate will need to provide full replacement cover for all buildings in the development as well as any common property that is not shared with the overall community, such as lifts or carports.
“ST policies will usually also provide public liability cover for the body corporate and must also provide fidelity guarantee insurance to protect the scheme against the loss of funds due to theft or fraud on the part of a trustee or an employee such as a managing agent.
“The premiums for this insurance are paid by only by the members of the body corporate (the individual ST owners) via their ST levies. In addition, these owners are also responsible for insuring their own household contents, and paying separate premiums for this cover.”
