The Hidden Risk Trustees Often Overlook: Why Building Insurance is Non-Negotiable in Sectional Title

A recent fire incident at a sectional title scheme in Johannesburg has once again placed the spotlight on one of the most critical responsibilities of any Body Corporate, maintaining adequate building insurance.

According to reports received from a resident within the scheme, an apartment unit suffered extensive fire damage after the blaze allegedly originated from a faulty electrical plug inside the unit. What has raised serious concern, however, is the allegation that the Body Corporate had cancelled the scheme’s building insurance prior to the incident.

While the specific scheme is not managed by EZI Properties, the situation serves as a powerful reminder to trustees, owners and managing agents across South Africa about the enormous legal and financial responsibilities attached to sectional title governance.

Building Insurance Is a Legal Obligation - Not a Choice

In terms of the Sectional Titles Schemes Management Act “STSMA”, every Body Corporate is legally required to insure all buildings within the scheme to their full replacement value.

Section 3 of the Act, which deals with the functions of Bodies Corporate, places a clear and mandatory obligation on trustees to ensure that adequate insurance cover is maintained at all times against fire and other prescribed risks.

This responsibility is not administrative in nature, it is fiduciary.

Trustees are appointed to act in the best interests of all owners within the scheme and are expected to exercise proper care, diligence and financial oversight when making decisions that affect the collective investment of owners.

When trustees fail to ensure that adequate insurance is in place, the consequences can be catastrophic.

The Financial Fallout Can Be Devastating

If a scheme suffers major damage and there is no valid building insurance policy in place, the Body Corporate may ultimately be forced to carry the full financial burden of rebuilding or repairing the property.

In practical terms, this could mean:

• Massive special levies imposed on owners
• Delayed repairs and reconstruction
• Legal disputes between owners and trustees
• Reduced property values within the scheme
• Potential personal liability for trustees in cases of gross negligence or breach of fiduciary duty

Many trustees accept appointment without fully understanding the seriousness of the role they undertake. A trustee position is not honorary or symbolic. It carries significant legal responsibilities and obligations under the STSMA.

Failure to perform these duties responsibly can expose both the Body Corporate and individual trustees to substantial financial and legal risk.

Trustees Must Understand Their Fiduciary Duty

One of the biggest challenges within sectional title schemes is that trustees are often volunteers with limited knowledge of sectional title legislation, governance requirements or risk management.

However, lack of knowledge does not remove accountability.

Trustees are expected to:

• Ensure compliance with the STSMA and scheme rules
• Act honestly and in good faith
• Exercise reasonable care and skill
• Protect the financial interests of owners
• Maintain adequate insurance cover for the scheme
• Review insurance valuations annually to ensure replacement values remain accurate

Insurance should never be viewed as an unnecessary expense or an area where cost-cutting measures can be implemented recklessly. The consequences of underinsurance - or worse, no insurance at all - can financially cripple a scheme overnight.

Contents Insurance Remains the Responsibility of Owners and Tenants

It is equally important for owners and tenants to understand that Body Corporate building insurance does not cover personal belongings inside units.

Furniture, electronics, clothing, appliances and other personal possessions typically fall under Home Contents Insurance, which remains the responsibility of the owner or tenant.

Without adequate contents cover, residents may suffer severe personal financial losses following incidents such as:

• Fires
• Flooding
• Burst geysers
• Storm damage
• Theft or vandalism

Prevention Is Always Better Than Crisis Management

The Johannesburg fire incident highlights a growing concern within sectional title schemes across South Africa, insufficient governance and poor understanding of trustee obligations.