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

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.

Why do I have to pay the cost of replacing a circuit breaker?

The cost of replacement or repairs rests with the owner:

• The electricity supplier, e.g. the local authority is responsible for maintaining the infrastructure of supply up to the delivery point to the scheme
• The owners are collectively responsible to maintain the infrastructure of electricity reticulation up to the various sections of the scheme
• The individual owners are responsible for all own electrical wiring, circuit breakers, switches, etc.

Some managing agents have agreements with maintenance and repairs contractors. The various schemes the managing agents serve are provided with a list of approved contractors. When services are required, the trustees come to an agreement and contact the contractor concerned and make arrangements to first get a quote/s or to have the repairs made. The contractor does the repairs if so instructed and the trustee concerned signs the invoice, which the contractor hands in at the managing agent. The managing agent pays the various contractors at agreed intervals and debits the scheme's account. Generally such an arrangement works well.

Ignorance and/or non-adherence to procedure may, however, cause problems, for example:

• If a trustee does not consult other trustees and obtain majority or consensus agreement prior to calling a contractor
• If an owner does not know/understand what the responsibilities of ownership entail and assumes/expects the body corporate (or even the managing agent) to repair/maintain—some owners of sectional title sections just do not comprehend the notion of common (collective) property, in addition to own section and some even are under the impression that the managing agent somehow own the common (collective) property. If such an owner tell a trustee to get a circuit breaker repaired; if the trustee call a listed contractor who does the work; then the managing agent would pay the contractor and debit the owner's next statement. The owner concerned has no option but to pay the amount due. However, had the owner concerned realised that it would be an owner's expense; then the owner may have been able to consider options that might have been cheaper.

If sections are adjacent to one another the median-lines between sections represents the boundaries. In the situation of sides that do not have an adjacent section, the median-lines form the boundary between the section and the common/collective property—the same applies to free-standing sections, the median-lines form the boundary between the section and the common/collective property. Everything on the inside of the median-line is the individual owner's property and responsibility to maintain.

The inner part of window panes and doors is the responsibility of the owners of individual sections, whereas the outer part is the responsibility of the owners collectively (the body corporate). The cost of replacement of a window, if cracked by for example hail damage, is therefore divided 50:50.

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.

Deterioration of common property

How do the bottoms of balconies get to look like this?

Or balustrades rusted like this? If you think this is an exception, visit the blog of Woodstream Lofts and scroll through the pictures.

In contrast, the Sectional Title Act obliges a body corporate—the owners/members collectively—"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 fulfillment of any other obligation of the body corporate" (Section 37[1][a]).

A body corporate that fails to provide for sufficient funding for proper maintenance is in violation of the Act.

What can an individual owner do if her/his investment is in jeopardy as result of neglect of fellow owners? There are options to pursue.

In response to Giovanni Camara Da Costa comment below, “What happens when the deterioration of the Common Property damages an Owners Section? Should the cost still be split 50/50?”, herewith my response:

• Firstly, an owner is a member of the body corporate (BC), the collective of owners.
• The BC is obliged to hold annual general meetings (AGM) each year, where the draft budget for the new financial year is tabled for approval of members. The prescribed agenda also makes provision for directives to the incoming trustees.
• If all owners left common property to deteriorate then collectively they are guilty an accountable to one another about neglect.
• If one or more specific owners incur damage sue to deterioration of common property and none of them ever did anything to address the situation, then none of them have a leg to stand on to expect the collective to share in the costs of damages they incurred.
• However, there is documentary evidence that an owner alerted the collective and the collective by majority vote opted to let it be, then the owner concerned—in my opinion—has the right to expect of the collective to incur the costs of damage.
• Responsibility works two-ways!



Sectional Title Scheme owners responsible to resolve sewage spill

An interesting example of ignorance appeared in the Roodepoort Record of 24 June: Download Roodepoort Record 24 June 2011 p3 Sewerage spill

The resolve a problem one first need to gather facts:

1. Is this sewage spill a council or an owner responsibility?
2. What does the relevant local authority by law specify?
3. Who is indeed the owner?
4. Where exactly is the problem located?

According to the City of Johannesburg Water-Services By-laws this specific problem appears to be the owner's responsibility:

• "sewer" means any conduit used for the conveyance of sewage from and of which the property is vested in the Council (definition from the by-law paraphrased)
• "drain" means that portion of the drainage installation that conveys sewage within any premises
• "owner" includes – (a) the person in whom from time to time is vested the legal title to premises, including, but not limited to, the registered owner according to the title deed; (e) in relation to - (i) a piece of land delineated on a sectional plan registered in terms of the Sectional Titles Act, 1986 (Act 95 of 1986), the developer or the body corporate in respect of the common property; and (ii) a section as defined in such Act, the person in whose name the relevant unit is registered under a sectional title deed, and includes the lawfully appointed representative of such a person; (relevant parts extrated from the definition of an owner)

The Roodepoort Record states that the Council inspected the sewer and found no blockages. The problem therefore appear to be within the drainage works of the premises. Now, who is the owner of the premises? Most certainly not the "infamous CSTM", who at most had been the managing agent of the body corporate. The owners of sections within a scheme personally own the sections and collectively own all the rest on the premises -- together all the owners form the body corporate. The body corporate are obliged by law to annually hold an AGM at which trustees for the new fianancial year are elected by the members of the body corporate (the owners of the sections comprising the scheme).

Had the Councillor known the relevant laws and regulations, he would in the first instance have asked CSTM for contact details of the current trustees. The trustees are responsible to manage, control and administer the affairs of the body corporate (the owners collectively). The sewer running into the lake is a violation by the owners collectively as a legal entity.

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

The ‘boss’ of a sectional title scheme

It happens from time to time that children of other households asked me ‘who is the boss [where we live]?’; ‘why is aunty so-and-so telling not to …?’; ‘to who does [the place where we live] belong?’

Not at all easy to give a succinct answer, because sectional title ownership generally entail the personal ownership of a unit and sharing ownership (and responsibilities) with all other owners in the scheme. The owners collectively form the body corporate. The body corporate is a legal entity in perpetuity, regardless of individual units changing ownership. The body corporate has specified responsibilities. The body corporate, as entity, makes rules for management and of conduct of residents. The body corporate is required to annually hold a general meeting to among others review the collective’s finances; consider the budget for the new financial-year and agree on what the owner/s of each unit need to contribute to meet the collective’s financial obligations; and to elect trustees for the new financial-year. Individuals nominated to serve as trustees, must agree to serve.

The trustees in turn elect a chairperson, who serves as presiding officer of meetings. S/he has no dominating right—the trustees are required to take decisions through consensus or voting. S/he serves as figure-head, without executing authority.

The trustees are through their election placed in charge to manage, control and administer in a prescribed fashion ('caretakers'). The trustees must preserve (or enforce) the rules of the body corporate and maintain the collective property. By implication the trustees are the ‘boss’ for one year at a time. But they may not just do as they please. They are accountable to the collective of owners, who they serve. Trustees do not enjoy any special privileges.

Chairperson likened to a captain of a sports team

The chairperson of the trustees of a sectional title scheme is not a 'boss' person, more like the captain of a sport team.

In team sports, a captain is a title given to a member of the team, similar as in the case of the committee of trustees, where an individual is elected as chairperson. Similar to a captain—a chairman is an honorary title— given to an individual because s/he serves as role model; motivates the other trustees (keep them upbeat); guide the ‘game strategy’ (e.g. maintenance); liaise with the managing agent (trustees could also give this responsibility to a specific trustee); deal with all issues arising with the team of trustees, as if a family.

Trustees are elected at the annual general meeting of the collective of owners—called the body corporate of the sectional title scheme—according to prescribed management rules (PMRs). At the first meeting of the newly elected trustees; they elect from among their number a chairperson.

Note, however, that all matters at any meeting of the trustees shall be determined by a majority of the votes of the trustees present and voting (PMR 22). There are prescribed procedures with regard to the calling of a meeting of the trustees, how notice should be given and the quorum necessary to meet. Owners are naïve in thinking that the chairman must take decisions. The trustees may through round robin take decisions, but then all must be in agreement (PMR 24).

Apart from chairing all meetings of the trustees the chairperson also has a casting as well as a deliberative vote (PMR 18). If for some reason the chairperson cannot be in attendance, then the trustees present would elect a chairperson for the particular meeting (PMR 21).

The chairperson further chairs all meetings of the collective of owners—the body corporate, unless the members decide otherwise (PMR 59[1]). Again, if for some reason the chairperson cannot or is not willing, then the members present at a properly constituted meeting would elect a chairperson from among their number (PMR 59[2]).