Subsidence of Sectional Title Dwellings

Part 2: A Case Study and Legal Analysis

By Prof. Graham Paddock

This follow-up article explores the procedural and legal steps available to a sectional title unit owner when in respect of foundations subsiding and consequent damage an insurance claim is repudiated, and the body corporate refuses to accept liability. It builds on Part 1 and details the application process under Section 39 of the Community Schemes Ombud Service Act 9 of 2011 (CSOS Act) for orders compelling the body corporate to  take action against the insurance company, perform necessary work and reimburse the owner’s associated costs. The article provides a synthesised case study and legal analysis, offering insights into effective dispute resolution in sectional title schemes.

Introduction

Foundation subsidence and the resultant damage to sectional title dwellings pose significant challenges. When insurance claims are repudiated and the body corporate denies responsibility, unit owners must seek alternative legal remedies. This article examines the procedural steps and legal recourse available, using a hypothetical continuation of a previous real-life case study published in Paddocks Press. It focuses on the application to the Community Schemes Ombud Service (CSOS) under Section 39 of the CSOS Act, illustrating the owner’s path to resolution.

Case Study

Building on the earlier case study in Part 1, we assume a scenario where:

1. The insurance company has repudiated the claim for subsidence damage.
2. The body corporate refuses to accept liability for stabilising the foundations and reimbursing the owner’s internal section repair and associated costs.
3. The owner decides to make an application under Section 39 of the CSOS Act for the necessary orders to recover these expenses.

Methodology

The methodology for resolving this extended dispute involves several key steps:

1. Initial Refusal and Dispute: Upon repudiation of the insurance claim and refusal of the body corporate to accept liability, gather all relevant documents, including correspondence (including that between the body corporate and the insurance company), full insurance policy details, engineering reports, and legal opinions.
2. Application to CSOS: Prepare and submit an application to CSOS under Section 39 of the CSOS Act, seeking orders for the body corporate to: Undertake the required work to stabilise the foundations, recover the reasonable costs of internal repairs, and oblige the body corporate to pursue action against the insurance company to cover the claims. Consider whether or not to include the insurance company as a respondent, given that it has a material interest in the scheme and its refusal is the root cause of the scheme administration dispute.

Relevant Relief under Section 39 of the CSOS Act:

1. Financial Issues: Section 39(1)(b), an order requiring the association to take action under an insurance policy to recover an amount, and Section 39(1)(e), an order for the payment or repayment of a contribution or any other amount. 
2. Works Pertaining to Private Areas and Common Areas: Section 39(6)(a), an order requiring the body corporate to have repairs and maintenance carried out, and Section 39(6)(b)(ii), an order requiring the relevant person to pay the applicant an amount fixed by the adjudicator as reimbursement for repairs carried out or to be carried out in respect of the property by the applicant.

Legal Framework and Relevant Provisions: The application relies on specific legislative provisions:

1. CSOS Act: Section 1 includes definitions of key terms such as “application”, “association”, “owner”, “common area” and “dispute”, Section 38 allows any person who is a party to or materially affected by a dispute to make an application, and Section 39 provides for the types of orders a CSOS adjudicator can make.
2. Sectional Titles Schemes Management Act 8 of 2011 (STSM Act): Section 1 includes definitions of key terms such as: “unit,” “section,” “common property”, “body corporate” and “owner”, Section 3(1)(l) obliges the body corporate to maintain all common property and Section 13(1)(c) obliges owners to repair their sections.
3. Sectional Titles Act 95 of 1986 (ST Act): Sections 5(3)(d), 5(4), and 5(5) define section boundaries, Section 16(1) deals with ownership of common property, and Section 28 establishes servitudes for subjacent and lateral support, making the body corporate liable if its failure to perform this duty results in damage to a section.

Application Process

Document Compilation: Compile evidence of the subsidence and resultant damage, including engineering reports, repair quotations, photographs, and correspondence.

Drafting the Application: Clearly outline the facts, issues, and legal grounds for the application. Specify the orders sought from the Ombud, including an order requiring the body corporate to take legal action against the insurance company and orders for the body corporate to carry out foundation stabilisation works, repair the common property and reimburse the owner’s internal section repair and other associated costs.

Specific Prayers to Support the Orders: The owner should request the following specific orders:

• Under Section 39(1)(b):  An order requiring the body corporate to take action under the insurance policy to recover from the insurer the amount necessary to repair the subsidence damage, the costs of section repairs and reasonable amounts for the owner’s loss of rent, removal costs, and alternative accommodation costs.
• Under Section 39(1)(e): An order for the body corporate to pay the owner’s reasonable claims for loss of rent, removal costs, and alternative accommodation, these being the direct and foreseeable results of the body corporate’s failure to maintain the foundations.
• Under Section 39(6)(a): An order requiring the body corporate to undertake the works necessary to stabilise the foundations and repair the building envelope.
• Under Section 39(6)(b)(ii): An order for the body corporate to reimburse the owner for the reasonable costs of section repairs directly attributable to the subsidence.

Submission and Conciliation

Submit the application to CSOS, initiating the dispute resolution process. Participate in conciliation sessions facilitated by CSOS to seek an agreed resolution. Assuming non-resolution at conciliation, participate in adjudication sessions to the extent allowed by the adjudicator.

Legal Analysis

 The body corporate’s refusal to accept liability contravenes its statutory obligations under the STSM Act and ST Act. By not addressing subsidence-related foundation repairs, the body corporate has failed in its statutory duty to maintain common property, thus necessitating intervention through CSOS. The insurance company’s refusal to honour the policy requires the body corporate to take legal action to enforce payment of compensation.

Outcome and Implications

 A successful CSOS application would, at no cost to the owner, result in orders compelling the body corporate to:

• Initiate legal action against the insurance company to recover the repudiated claim amounts.
• Stabilise the foundations as part of their maintenance duty.
• Reimburse the owner for section repair costs directly caused by subsidence.
• Reimburse the owner for indirect costs incurred as a result of the body corporate’s failure to properly maintain the common property.

Conclusion

This synthesised case study underscores the importance of utilising CSOS to resolve disputes in sectional title schemes. When insurance claims are repudiated, and the body corporate denies responsibility, unit owners have a clear path to seek justice and ensure statutory obligations are upheld. Legal practitioners should guide clients through thorough documentation and strategic use of legislative provisions to effectively navigate such disputes.

Article reference: Paddocks Press: Volume 20, Issue 03

This is the second in a two-part series in Paddocks Press.

This article is published under the Creative Commons Attribution license.

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