Sectional Title Living

Before falling in love ...

One does not buy only the section of a scheme, a unit includes an undivided share of the common property. All the owners collectively own everything that is not part of a specific section.

Take a step back and assess what the rest of the property looks like, is it well maintained or in need of maintenance? Ask the estate agent what the monthly levy is and what the name of the managing agent is. (That is a firm that collects the levies and manage the finances on behalf of all the owners collectively) Go to the managing agent and ask to see the last financial statements of the scheme. Look for the assets,  liabilities and funds in reserve. Look at the budget for the current financial year. Assess the general financial health of the scheme.

You may wonder why. The reason is that the moment you become the owner of the section that you fell in love with, you also become co-responsible for the entire scheme. Regardless of how good the section looks that you want to buy, if the rest of the building is in dire need of maintenance it is going to cost money. If there is not much cash in reserve all the owners collectively will be required to contribute (by special levy) to the funds needed to undertake the maintenance. If your personal budget is already streched you will be in trouble.

The Paddocks Sectional Title Survival Manual (by GJ Paddock) further recommends that before you buy you should: "Carefully consider the contract of sale, the management and conduct rules, the sectional plan, the scheme as a whole, the section and any exclusive use areas before a deal is done" (p. 3-1).

Of particular importance are the scheme's management and conduct rules. Make sure you would comfortably fit in. If, for example, no pets are allowed and you love/have pets, you might be quite misrable.

Revised 17 May 2010

'Poly' property and obligations

‘Poly’ property (from Greek πολυ [poly, meaning many or several] — in this case ownership) or common property.

One of the perceived advantages of sectional title living is that you need not worry about anything other than your section. Wrong!! In addition to your section you also own an undivided share of the common property. Paddocks - Sectional Title Survival Manual describes it succincly "The 'common property' includes all the land and those parts of the building that are not sections, i.e. all parts of the scheme that cannot be exclusively owned by any one person individually".

For example:

• The perimeter wall/fence, maintaining it as a good security barrier, perhaps with electric fence and armed response.
• The gates in good working order, proper and reliable access control, the functioning of a motor to open and close the gate, the remote controls, closing and locking mechanisms.
• The aesthetic appearance of the exterior of the building and the maintenance to preserve the value and avoid damage.
• The functioning of the lift and statutory maintenance compliance.
• Fire extinguishing facilities and routime maintenance.
• Cleaning of the building, rubbish removal and maintaining the gardens.
• The water reticulation and electricity distribution throughout the scheme.
• The range of services with regard to all the aforementioned and other.
• The waterproofing of the roof, regardless if your unit is lower down.

The responsibilities of all the above and several other are shared among the owners collectively, managed by the trustees and financed through payment of levies.

Revised 17 May 2010

'Why must I pay a levy?' or 'why is the levy so high?'

In order to finance all aspects of common property all schemes have levies. Refer to Section 37(1)(a-d) of the Sectional Title Act. The levies payable is derived from the approved budget for the financial year and devided based on the participation quota.

The floor areas of all the sections of a scheme are added together to derive the total floor areas. The participation quota (Section 32 of the STA) of a section is then calculated and expressed as decimal fraction or percentage of the total floor areas. Normally the participation quota of a section determines the share payable by the owner with regard to the common expenses.

One of the prescribed agenda items (Prescribed Management Rule 56[b][ii]) of a scheme's annual general meeting is the budget of the ensuing financial year. Once approved by the owners, the budget then determines the levies payable by owners based on the participation quota of their sections.

Should there be an unforeseen (or unplanned) common expense, then the trustees have the right to implement a special levy payable in order to fund the non-budgeted expense.

Revised 17 May 2010

Cannot afford the levy increase

At a recent Annual General Meeting of a Sectional Title Scheme an owner questioned the reason for maintenance (the same owner wants to be left alone to do as she pleases). This two-fold attitude signifies the ignorance of many owners:

1. Section 36(1) of the Sectional Title Act states in no uncertain terms that every person who becomes an owner of a unit in a sectional scheme shall be a member of that body corporate and section 36(2) that she/he/they shall cease to be a member of that body corporate when ceases to be the owner of a unit in the scheme.
2. Section 37 elaborate the functions of the body corporate, namely:
   1. To establish a fund sufficient for the repair, upkeep, control, management, insurance premiums, payment for services, running expenses and administration of the common property—including reasonable provision for future maintenance and repairs [section 37(1)(a)].
   2. The members (owners of units) shall make sufficient contributions to such a fund [section 37(1)(b-c)].
   3. Among others, to properly maintain common property (including elevators) and to keep common property in a state of good and serviceable repair all plant, machinery, fixtures and fittings; plus to comply with any notice or order by any competent authority requiring any repairs to or work [section 37(1)(j, k & o)].

If an owner is not prepared to accept the responsibility as outlined above, the person or legal entity should not be an owner because it is obligatory. Furthermore, if an owner cannot or can no longer afford the obligatory share of costs (levies payable) the owner should sell because such an owner cannot afford the legal obligations associated with the ownership of the unit/s in the scheme.

Cleaner-gardener wages

Minimun wage increases for domestic workers from 1 December 2012. The South African Department of Labour implemented Determination 7 to protect domestic workers from exploitation. A sectional title scheme usually employs one or more persons (depending on size and scope of common services needed), if it does not make use of contract-services. Such persons are classified as domestic workers and the Determination 7 applies to the relationship between such individual/s and the body corporate, as employer. However, there are contrasting opinions if the sectoral determination 7 applies to the employees of a body corporate - added 27 September 2010.

Minimum wages for domestic workers are set in terms of Determination 7. The minimum wage table is divided in two areas. Area A includes the following South African local governments: Bergrivier Local Municipality, Breederivier Local Municipality, Buffalo City Local Municipality, Cape Agulhas Local Municipality, Cederberg Local Municipality, City of Cape Town, City of Johannesburg Metropolitan Municipality, City of Tshwane Metropolitan Municipality, Drakenstein Local Municipality, Ekurhulen Metropolitan Municipality, Emalahleni Local Municipality, Emfuleni Local Municipality, Ethekwini Metropolitan Unicity, Gamagara Local Municipality, George Local Municipality, Hibiscus Coast Local Municipality, Karoo Hoogland Local Municipality, Kgatelopele Local Municipality, Khara Hais Local Municipality, Knysna Local Municipality, Kungwini Local Municipality, Kouga Local Municipality, Langeberg Local Municipality, Lesedi Local Municipality,  Makana Local Municipality, Mangaung Local Municipality, Matzikama Local Municipality, Metsimaholo Local Municipality, Middelburg Local Municipality, Midvaal Local Municipality, Mngeni Local Municipality, Mogale Local Municipality, Mosselbaai Local Municipality, Msunduzi Local Municipality, Mtubatu Local Municipality, Nama Khoi Local Municipality, Nelson Mandela, Nokeng tsa Taemane Local Municipality, Oudtshoorn Local Municipality, Overstrand Local Municipality, Plettenbergbaai Local Municipality, Potchefstroom Local Municipality, Randfontein Local Municipality, Richtersveld Local Municipality, Saldanha Bay Local Municipality, Sol Plaatjie Local Municipality, Stellenbosch Local Municipality, Swartland Local Municipality, Swellendam Local Municipality, Theewaterskloof Local Municipality, Umdoni Local Municipality, uMhlathuze Local Municipality and Witzenberg Local Municipality. Area B includes the rest of the country not specified in A.

The minimum wage table is divided in two tables. Table 1 determines the minimum wages for domestic workers who work more than 27 ordinary hours per week, whereas Table 2 specify the minimum wages for domestic workers who work 27 ordinary hours or less per week.

Herewith a combination of Tables 1 & 2 for area A only:

Minimum rates for the period 1 December 2012 to 30 November 2013
TABLE 1: 27+ hours		TABLE 2: ≤27 hours
Hourly Rate (R )	8.95	Hourly Rate (R )	10.48
Weekly Rate (R )	402.96	Weekly Rate (R )	285.62
Monthly Rate (R )	1746.00	Monthly Rate (R )	1237.60

Minumum rates for Table 1 (area A) 1 Dec 2012 to 30 Nov 2013 are plus 7.4%

Note that the CPI (excluding owners' equivalent rent) has replaced CPIX according to Gazette No 32397 regulation No. R. 737 dated 17 July 2009 and the August CPI was available 6 weeks prior and thus utilised.

The wages for 1 December 2012 to 30 November 2013 was calculated as follows: CPI (excluding owners' equivalent rent) plus 1% for Area A = 6.4% + 1% = 7.4%.

Each unit owner pays her/his/their share of the wage/s, included in the levy, based on the participation quota relevant to the unit.

Updated 8 December 2012

Why should I pay a special levy while others are in arrears?

Good question, deserving some explanation and unpacking.

• Owners of units in a sectional title scheme own collectively the common property
• All the owners together form the body corporate
• The functions of bodies corporate [section 37, Part VIII, of the Sectional Titles Act, 1986 (Act No. 95 of 1986)] include among others:
  • [1(j)] to properly to maintain the common property (including elevators) and to keep it in a state of good and serviceable repair;
  • [1(k)] to comply with any notice or order by any competent authority requiring any repairs to or work in respect of the relevant land or building or buildings;
  • [1(o)] to keep in a state of good and serviceable repair and properly maintain the plant, machinery, fixtures and fittings used in connection with the common property and sections;
  • [1(p)] … to maintain and repair (including renewal where reasonably necessary) pipes, wires, cables and ducts existing on the land …
  • [1(f)] 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;
  • 1(i)] to pay the premiums on any policy of insurance effected by it;
  • [1(a)] to establish for administrative expenses a fund sufficient in the opinion of the body corporate for the repair, upkeep, control, management and administration of the common property (including reasonable provision for future maintenance and repairs), for the payment of rates and taxes and other local authority charges for the supply of electric current, gas, water, fuel and sanitary and other services to the building or buildings and land, and any premiums of insurance, and for the discharge of any duty or fulfilment of any other obligation of the body corporate;
  • [1(b)] to require the owners, whenever necessary, to make contributions to such fund for the purposes of satisfying any claims against the body corporate …
  • [1(c)] to determine from time to time the amounts to be raised for the purposes aforesaid;
  • [1(d)] to raise the amounts so determined by levying contributions on the owners in proportion to the quotas of their respective sections;

The extracts from section 37 of the STA indicate the responsibility of the owners collectively (i.e. the body corporate) regarding maintenance, repairs, compliance with legal imperatives, insurance, payment for services, levies in accordance with all these expenses and raising the levies payable.

The above is all good and well, if the members—the owners of units—each fulfil their obligations. However, things do happen—people experience financial uphill and some people unfortunately just do not care about obligations—arrears occur.

• In terms of Prescribed Management Rule 31(5) "An owner shall be liable for and pay all legal costs, including costs as between attorney and client, collection commission, expenses and charges incurred by the body corporate in obtaining the recovery of arrear levies, or any other arrear amounts due and owing by such owner to the body corporate, or in enforcing compliance with these rules, the conduct rules or the Act."

The remaining owners need to keep the 'boat afloat', while the legal process of collecting arrears takes it course.

It is advisable that a body corporate keeps a reserve of money and institute a planned maintenance programme to spread the costs.

The serving trustees prepare a budget for the forthcoming financial year, which the AGM approves and which essentially determines the levies payable.

When unforeseen things however happen, the serving trustees do have the right and the authority in terms of Prescribed Management Rule 31(4) to raise a special levy. The accumulation of arrears could, for example, cause a cash flow constraint, necessitating a special levy.

 

An owner protested: 'I am not happy about the possibility to pay extra money because somebody did not pay their levies, my record of payment will attest that I also had difficulties in payments and I have just been back on my feet, therefore if I were to pay extra money will take me back to square one and I do not want to be in arrears anymore.'

Agreed; it is not fair—not conforming to approved standards, as of justice, honesty, or ethics. However, while the legal collection process (Download Legal Process Flow Chart - if the document does not open, save it to your PC's hard drive and open it from there) deals with the owner/s in arrears, the remaining owners do not have much of a choice.

Revisited 28 February 2011

Insufficient funds for leaking roof—rights and realities

The facts or circumstances may differ, but many sectional title schemes are faced with realities such as:

• Owners voted for minimum levy increases for several years
• Cash reserves dwindled as result of usage
• Maintenance had been kept to essentials
• At least 10% of owners are in arrears with levy payments; and the arrears and legal fees to collect such have accumulated to a substantial amount
• The lift equipment is 30 years old, maintained in accordance with the law, but wear-and-tear nevertheless—the lift get stuck from time-to-time; is often out of level; and looks aesthetically neglected
• The company that waterproofed the roof for the past twenty years had been liquidated—the warrantee is therefore of no value
• When the previous trustees increased the levies by 10% in accordance to the new Management Rule 31(4A), gazetted 28 November 2008—Department of Land Affairs, No. R. 1264; Government Gazetted, No. 31626—the owners petitioned against the increase
• During the rainy season the roof started leaking at a few places

Options to consider:

1. The owner/s affected by the roof-leakage/s may submit a claim to insurance, but need to pay the excess—new Management Rule 29(4) applies—unless the owners collectively (the body corporate) by means of a special resolution decide that the body corporate will pay the excess (however, 75% of members are perhaps unlikely to assume proportional responsibility for payment of an excess relating to a single section).
2. The owner/s affected by the roof-leakage/s may enter into a dispute with fellow owners (the body corporate) about the excess payable, in which case the arbitration route might be followed (Management Rule 71).
3. The trustees have the right to raise a special levy to have the roof re-waterproofed and guaranteed, but effectively need to raise 110% of the amount required, because the 10% owners in arrears are unlikely to make the special levy payment—the full amount required therefore need to be contributed by 90% owners and the arrears of the 10% escalated.
4. It could be argued that the modernisation of the lift is a non-luxurious improvement; or that the refurbishment is necessary maintenance—if deemed a non-luxurious improvement the trustees need to give notice to the owners and convene a special general meeting where a special resolution need to be passed.

It is important to look into a scheme's situation before buying, because of common property responsibilities. It is further essential to get to know your rights (and obligations as member of the body corporate) as owner within a scheme. Attendance of annual and special general meetings of the scheme (body corporate) is important, because decisions may impact on you materially—a medium term look at maintenance and cash flow (finances) is crucial.

A body corporate consists entirely of consumers

The nature of the body corporate of a sectional title scheme excludes it from the National Credit Act (NCA). The members of a body corporate are collectively the owners and have a joint responsibility to, for example the local authority, for sewerage, refuse removal, water, etc. If one or more owners are in arrears with levy payments, such owner/s cannot submit a plea to pay off arrears over an extended period.

The purpose of the NCA is to protect consumers from unscrupulous creditors, "it follows therefore that Act does not regulate or protect a consumer from other joint consumers … worse of all, favouring one consumer above other consumers would obviously defeat the very purpose of the NCA" (Padayachee). Irresponsible, non-paying owner/s with levies in arrears; could easily render a body corporate bankrupt; the living conditions unhealthy if the local authority were for example to cut off water; rendering the sectional scheme dysfunctional and unsustainable.

Padayachee, S. (for the Body Corporate of Park Avenue Gardens, SS 221 of 1989) versus Shapiro, W (for Bricknell, V.D. owner of section 62). Magistrate's Court of the Durban District, Case No 2180/2008. Plea by Bricknell dismissed with costs on 16 February 2010 by Magistrate L Matjele.

Levy increase to fund Sectional Titles and Community Ombud

Wondering how the Ombud Service will be funded? Section 22(1) of the Community Scheme Ombud Services Bill [B21-2010] states among others:

(b) levies collected from community schemes with the approval of the Minister;

(c) fees for services rendered based on cost recovery;

What is meant by a ''community scheme''? Section 1 of the same Bill, among the definitions (emphasis added):

any scheme or arrangement in terms of which there is shared use of and responsibility for parts of land and buildings, including but not limited to a sectional titles development scheme, a share block company, a home or property owner's association, however constituted, established to administer a property development, and a housing scheme for retired persons

Written comment is invited about both the Sectional Titles Scheme Management Bill [B20-2010] Download Sectional Titles Schemes Management Bill and the Community Scheme Ombud Services Bill [B21-2010] Download Community Services Ombud Service Bill. Deadline 12:00 on Friday 3 September 2010 (Casual Day) and public hearings about the Bills will be held in Parliament on 8 and 10 September 2010.

The Sectional Titles Scheme Management Bill [B20-2010] will amendment or repeal (pp. 16-22) parts of the Sectional Titles Act, No 95 of 1986.

There SHALL be reasonable provision for maintenance

Owners of a sectional title scheme have a collective duty to maintain the common property. It is not a matter of owners could if they have the financial means. Unlike freehold property, the maintenance of the collectively owned property is a collective obligation.

Section 37(1)(a) of the Sectional Titles Act (95 of 1986) is quite clear in this regard. The prescribed management rules appended to this act, Rule 36 on the annual financial estimate, states “(1) Before every annual general meeting, the trustees shall cause to be prepared an itemised estimate of the anticipated income and expenses of the body corporate during the ensuing financial year, which estimate shall be laid before the annual general meeting for consideration in terms of rule 56 hereof. (2) The estimate of expenses referred to in sub‐rule (1) shall include a reasonable provision for contingencies and the maintenance of the common property.” (emphasis added).

The Sectional Titles Schemes Management Act, No. 8 of 2011, repeals section 37 of the Sectional Titles Act, and replaces (section 3) it with, the functions of bodies corporate, which include interalia:

• (1) A body corporate must …

• (a) to establish and maintain an administrative fund which is reasonably sufficient to cover the estimated annual operating costs—
• (i) for the repair, maintenance, management and administration of the common property (including reasonable provision for future maintenance and repairs);
• (b) to establish and maintain a reserve fund in such amounts as are reasonably sufficient to cover the cost of future maintenance and repair of common property but not less than such amounts as may be prescribed by the Minister;

The exisitng prescribed management rules are retained as per Section 10(12) of the Sectional Titles Scheme Management Act, No 8 of 2011: http://www.info.gov.za/view/DownloadFileAction?id=147401

Absentee-minded sectional title ownership

Absentee means "a person who absents himself or herself, as a landowner who does not live on certain property owned". Minded means "having a certain kind of mind; inclined to or pay attention to".

Sayed Iqbal Mohamed identifies three types or catgories of absentee owners. However, there is a fourth, the resident, self-centred kind of owner. They do not attend any body corporate meetings and demonstrate little interest, if any. However, they are quick to demand immediate attention if anything is the matter with regard to their personal convenience. It appears as if they consider the levies they pay entitle them to all the 'conveniences of non-free-hold property'; come and go as they please; and no responsibility regarding common property.

Sharing costs through sectional title ownership

A substantial advantage of owning property in a sectional title scheme, in contrast to free-hold property where everything belongs to the owner, is that ownership of everything other than the your personal section is shared ownership. The title deeds usually reads something to the effect of:

A unit consists of: (a) ...; and (b) an undivided share in the common property apportioned to the said section in accordance with the participation quota as endorsed on the said section plan.

This reality is possibly the biggest problem of sectional title ownership, in that owners appear to perceive that some entity other than themselves are responsible. This 'b' part of the title deed encompass membership of the body corporate of the scheme. The Sectional Titles Act (STA), No 95 of 1986, §36(1), as well as the Sectional Titles Schemes Management Act, No 8 of 2011—that would amend section 36 of the STA—§2(1) reads:

With effect from the date on which any person other than the developer becomes an owner of a unit in a scheme, there shall be deemed to be established for that scheme a body corporate of which the developer and such person are members, and any person who thereafter becomes an owner of a unit in that scheme is a member of that body corporate.

This is an important issue that Andrew Buttress fails to address in his message to the Roodepoort Record (Download Is_threre_a_loophole_in_the_law-loss_of_financial_control_Rdp_Record_22July2011). The abovementioned acts outline the responsibilities of the body corporate, which is elaborated upon in the prescribed management rules (PMRs). It is important to note that a body corporate may make use of the services of a managing agent, but is not obliged to, they owners may self administer. PMR 46 outlines what the appointment, powers and duties of a managing agent (MA) should entail. In my opinion MA is a misnomer, it should be administrative agent.

The biggest 'loophole' in sectional title is owner apathy. There are many checks and balances in place to preserve the rights of owners, but few owners show any real interest. What Constantia Sectional Title Management did is criminal, but it does not absolve the trustees and owners of schemes affected from their responsibility.

Who is liable to pay CoJ with CSTM being liquidated?

Do you as owner know for sure that all services rendered are paid up to date or do you pay your levies and don’t bother? Some 22 000 owners of some 450 sectional title schemes, most of which probably within the City of Johannesburg, relied on third and fourth parties with regard to their personal financial obligations.

In sectional title schemes everything that is not part of the individual sections is owned by the collective of owners, known as the body corporate. This collective, as legal persona, has obligations. The liquidation of Constantia Sectional Title Management (CSTM) should serve as a wake-up call for all sectional title owners. Download CSTM - Trustee Letter - Lexstar

• On 24 May 2011 the North Gauteng High Court in Pretoria ordered the liquidation of CSTM
• All trading halted and accounts frozen pending investigation
• It will take quite a while before any funds available will be released
• Owners are not able to sell their properties and buyers may find it hard to obtain loans

This means that 450 schemes were without the funds, held in trust at CSTM, since 24 May 2011 and that 22 000 owners are facing financial liabilities if the body corporate concerned does not have a separate bank account in its own name to keep the reserves for maintenance.

Hard as it may seem, it is none of the concern of the local authority if funds entrusted to a third party disappears. The local authority renders services and has the right to payment. The same apply to all the other service providers of the bodies corporate affected.

Many bodies corporate rely on managing agents to take care of everything. Some bodies corporate even experience difficulty at annual general meetings (AGMs) to get trustees elected. Many owners never attend AGMs and abdicate all responsibility.

The nomination and election of trustees for each financial year is a very important matter. Owners are entrusting the financial well being of the collective property and responsibility to such individuals elected as trustees. The trustees in turn may self manage the affairs of the scheme or employ an agent to handle certain affairs entrusted to such a service provider. However, the trustees remain responsible to manage, maintain and control and in turn are accountable to the collective of owners. Michael Bauer advocates the four eyes principle contained in prescribed management rule 27.

The collective of owners annually approve the budget for the financial year ahead. This budget determines the levies payable by owners of individual sections in accordance to the participation quota (prorate portion in the scheme). The collective of owners makes the rules in according to which the trustees manage the affairs of the collective. The trustees get the annual financial statements produced and audited for tabling at the AGM.