Can a body corporate cancel its building insurance policy and allow individual owners to take out private insurance on their separate units instead?

Question

Answer 1

Under the legislation, the insurance of the buildings is not optional for the body corporate and cannot be shifted to individual owners.

Here's how the law deals with it:

Body corporate's duty:
Section 3(1)(h) of the STSMA requires the body corporate to insure the building or buildings of the scheme to their full replacement value, against fire and other prescribed risks.
Additional cover:
The body corporate may also insure against other risks if the members decide so by special resolution (STSMA s3(1)(i)).
Individual owners' rights:
Section 14 of the STSMA allows individual owners to take out additional private insurance, but only for risks not already covered by the body corporate's policy. This means you can supplement, but not replace, the scheme's insurance.
Management Rules:
Management Rule 23 (Annexure 1) reinforces this by placing responsibility on the body corporate to arrange and maintain insurance for all buildings in the scheme.

✅ Conclusion

The body corporate must maintain a collective building insurance policy covering the entire scheme. Owners cannot "cancel" this and insure their own sections separately. What you can do as an owner is take out additional, individual cover for risks not included in the body corporate's policy.

Disclaimer: The information provided here is for general guidance on sectional title legislation and does not constitute formal legal advice. For specific legal interpretation, disputes, or official rulings, consult with qualified legal professionals or the Community Schemes Ombud Service. ELA can make mistakes. Double-check responses.

Answer 2

📘 Legislative References

STSMA Section 3(1)

A body corporate must perform the functions entrusted to it by or under this Act or the rules, and such functions include—

STSMA Section 3(1)(h)

to insure the building or buildings and keep it or them insured to the replacement value thereof against fire and such other risks as may be prescribed;

STSMA Section 3(1)(i)

to insure against such other risks as the owners may by special resolution determine;

STSMA Section 14(1)

Notwithstanding the existence of a valid insurance policy effected by the body corporate pursuant to the provisions of section 3(1)(h), an owner may obtain an insurance policy in respect of any damage to his or her section arising from risks not covered by the policy effected by the body corporate.

STSMA Section 14(2)

This section does not limit the rights of an owner to insure against risks other than damage to his or her section.

Management Rule 23 - INSURANCE (Annexure 1)

23(1): The insurance policies of the body corporate in terms of sections 3(1)(h) and (i) of the Act—

23(1)(a): must provide cover against—

(i) risks referred to in regulation 3;
(ii) risks that members resolve must be covered by insurance; and
(iii) risks that holders of registered first mortgage bonds over not less than 25 per cent in number of the primary sections by written notice to the body corporate may require to be covered by insurance;

Management Rule 23(1)(b) (Annexure 1)

must specify a replacement value for each unit and exclusive use area, excluding the member's interest in the land included in the scheme; provided that any member may at any time by written notice to the body corporate require that the replacement value specified for that member's unit or exclusive use area be increased;

Management Rule 23(1)(c) (Annexure 1)

must restrict the application of any average clause to individual units and exclusive use areas, so that no such clause applies to the buildings as a whole;

Management Rule 23(1)(d) (Annexure 1)

must include a clause in terms of which the policy is valid and enforceable by any holder of a registered mortgage bond over a section or exclusive use area against the insurer notwithstanding any circumstances whatsoever which would otherwise entitle the insurer to refuse to make payment of the amount insured, unless and until the insurer terminates the insurance on at least 30 days notice to the bondholder; and

Management Rule 23(1)(e) (Annexure 1)

may include provision for excess amounts.

Management Rule 23(2) (Annexure 1)

A member is responsible—

23(2)(a): for payment of any additional premium payable on account of an increase in the replacement value referred to in subrule (1)(b);

23(2)(b): for any excess amount that relates to damage to any part of the buildings that member is obliged to repair and maintain in terms of the Act or these rules, and must furnish the body corporate with written proof from the insurer of payment of that amount within seven days of written request.

Management Rule 23(3) (Annexure 1)

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.

Management Rule 23(4) (Annexure 1)

A body corporate must prepare for each annual general meeting schedules showing estimates of—

23(4)(a): the replacement value of the buildings and all improvements to the common property; and

23(4)(b): the replacement value of each unit, excluding the member's interest in the land included in the scheme, the total of such values of all units being equal to the value referred to in subrule 4(a).

Management Rule 23(5) (Annexure 1)

On written request by any registered bondholder and the furnishing of satisfactory proof, the body corporate must record the cession to that bondholder of that member's interest in any of the proceeds of the insurance policies of the body corporate.

Management Rule 23(6) (Annexure 1)

A body corporate must take out public liability insurance to cover the risk of any liability it may incur to pay compensation in respect of—

23(6)(a): any bodily injury to or death or illness of a person on or in connection with the common property; and

23(6)(b): any damage to or loss of property that is sustained as a result of an occurrence or happening in connection with the common property, for an amount determined by members in general meeting, but not less than 10 million rand or any such higher amount as may be prescribed by the Minister in any one claim and in total for any one period of insurance.

Management Rule 23(7) (Annexure 1)

A body corporate must take out insurance for an amount determined by members in general meeting to cover the risk of loss of funds belonging to the body corporate or for which it is responsible, sustained as a result of any act of fraud or dishonesty committed by a trustee, managing agent, employee or other agent of the body corporate.

Management Rule 23(8) (Annexure 1)

A body corporate, authorised by a special resolution of members, may insure any additional insurable interest the body corporate has—

23(8)(a): in the land and buildings included in the scheme; and

23(8)(b): relating to the performance of its functions, for an amount determined in that resolution.

Disclaimer: ELL provides official legislative text and estate rules (such as the Code of Conduct) for information purposes only. It does not constitute legal advice. For assistance with legal interpretation or application, please consult a qualified professional.