How to approve and insure additional water heating systems on common property
Using solar geysers or panels to heat water is becoming more and more common in community schemes, as up to 50% of household electricity costs can be consumed by heating water. In addition, owners who have geysers inside their sections may be keen to move them outside, onto the common property where any leak will cause less damage.A scheme’s conduct rules are the ideal mechanism to regulate the placement of owners’ geysers, solar panels and any associated water-heating piping, wiring, support brackets, covers and other equipment on common property in a standardised and aesthetically acceptable way, to avoid problems and unpleasantness. A trustee policy is more complex and liable to change. Prescribed management rule 31(1) does make owners responsible for the costs of maintenance and replacement of water-heating installations that serve their sections or exclusive use areas. However, it is best to have a rule that provides a wide scope of owner responsibility and takes account of the practical insurance aspects.
Is an owner’s water heating equipment part of the common property?
Graham Paddock and I both agree that the law regarding items owners attach to the common property is complicated, but the way to deal with the issue simply is to have a rule, or at least a written contract, recording the intention of the body corporate and the owner. The rule should confirm that the water-heating equipment the owner installs will form part of the common property, so that it is covered under the body corporate’s policy, but that the owner will bear all costs that arise from its installation. The rule should also confer exclusive use right on the owner and specify that its purpose is to house the geyser and/or solar power harvesting equipment. Ideally, the rule should allow all owners to do the same thing on similar areas of common property adjacent to their sections.
What about the body corporate’s insurance policy?
From an insurance perspective, it is best that the solar power harvesting equipment be part of the common property, subject to exclusive use rights and covered by the body corporate’s insurance policy. Each time more panels and geysers are added, the body corporate needs to formally notify the insurer. The rule needs to make it clear that each owner will pay the premium increase that results from adding these items and also any excess amount that is withheld when a claim is made on that equipment. The rule should also make the persons who install these systems liable for any other expenses that arise as a result of their being covered, or the increased number of claims that result. Prescribed management rule 31(1) and the proviso to section 3(1)(c) of the STSM Act ensure the owner is responsible to carry out and pay for repairs and maintenance, and the body corporate can recover any unexpected expenses that result from the installation in the exclusive use area. Under the body corporate’s policy, the water-heating equipment must be insured for normal perils.
Insurance definitions and policy wording
Insurers generally take the view that hot water installations, for which the owners are responsible, include the tank and its components plus the pipes within one metre of the tank, provided the geyser tank is not more than 300 litres. Any other part of the system is considered to form part of the buildings for normal perils cover.
There are various types of solar hot water heating systems. Some comprise a tank and solar panels installed close together, others are connected, but further apart. Some systems have elements heating the water and powered by batteries connected to solar panels. Other systems are even more complex. The scheme rule should always specify what parts of any system will be seen as parts of the hot water installation and therefore the owner’s responsibility and what parts, if any, will be considered the body corporate’s responsibility. Check the body corporate’s policy wording and definitions, and make sure any new insurer knows of the rule.
Role of the insurance broker
The insurance advisor or broker plays an important role in guiding trustees. There are three types of wordings commonly used in sectional title building policies.
- Traditional ‘combined’ or ‘material damages’ policies.
Where this type of policy is in place, it is more important to state the replacement costs and disclose these items which may need to be insured on an all-risk basis. The policy will usually be endorsed to accommodate the changes.
- ‘All risk’ policies.
These are common newer policy wordings. All the water-heating installations are considered part of the building and covered automatically on an all-risk basis. They are insured for the usual perils, even theft—which will be limited, usually to around R20 000.
- ‘All risk hybrid’ policy
These are even more recent policy wordings, based on traditional material damages policy wordings but with elements of all-risk policies. This type of policy usually includes more specific references to geysers and solar installations.
Record keeping implications
Owners’ water heating systems on the common property should be separate line items on the body corporate’s schedule of replacement costs and not be lumped in with the rest of the common property items. This assists the body corporate to recover any related costs from the owner.
In a recent installation that I advised on, the whole solar system cost the owner R150 000. This charged back-up batteries housed within the section and powered some appliances. The panels on the roof (R13 000) were shown as common property subject to exclusive use and the balance (R137 000) was an additional sum allocated to his section.
In another instance, a commercial office complex that included several tower blocks had a tenant who applied for permission to install solar panels on the roof, to take the business ‘off the grid’. The body corporate required that the owner take exclusive use rights to the rooftop.
Setting acceptable standards
One of the challenges with allowing owners to specify solar heating systems is the wide range of quality in equipment and suppliers. Cheaper systems and those assembled by owners with components from different suppliers may cause difficulties. When a water supply system fails, it often causes substantial damage to the surrounding common property and may also cause water damage to sections. Ideally a body corporate should reach an agreement and include in a rule for minimum standards, that will reduce the risk of frequent claims and failures.
Four steps to success
To do the job properly and keep risks within reason, trustees should:
- Consult with a reputable solar manufacturing and installation specialist. Assess the needs and get suitable specifications.
- Get a sectional title expert attorney, working with any managing agent, to draft the appropriate rule, resolution and agreements.
- If the body corporate is going to fund the installation, ensure it uses an experienced and reputable sectional title financier.
- Present the quotations and specifications to a sectional title specialist insurance advisor who can advise on the schedules of replacement values and policy to protect the body corporate’s interests.
Article reference: Paddocks Press: Volume 16, Issue 1.
Author: Mike Addison is the director of Addsure – www.addsure.co.za – specialist sectional title insurance brokers.
Article Date: 27 January 2021
This article is published under the Creative Commons Attribution license.