Sectional Title Living

Alegations of unmandated spending vs ignorance?

 

It appears as if the report above published in the Roodepoort Record of 20 March 2009 reflects a fair amount of ignorance. The Sectional Title Act is intended to protect the rights of owners, not tenants. A tenant is a person or group that rents, occupies, inhabits or hold or possession of land, house, flat or office; that belongs to another; for a period of time; usually for rent. All the owners of a sectional title scheme, together forms the body corporate of the scheme. The body corporate elects trustees at the annual general meeting (AGM), which is a statutory prerequisite. At the AGM the owners may, through majority vote, place restrictions on the owners or give directives. The owners effectively transfer their responsibility to manage the collective affairs to the trustees.

Any trustee may at any time call a meeting of the trustees, but must give proper notice. Any owner may attend the meeting of trustees to speak, but may not vote. If 25% of the owners were to request a special general meeting (SGM) of the body corporate the trustees are obliged to arrange such. If the trustees fail the 25% may proceed, but must adhere to prescribed procedure to arrange the meeting.

The building of parking spaces represents an improvement—which is probably a luxury improvement—which requires both a unanimous resolution by the owners and the necessary approval of the authorities.

Owners should familiarise themselves with the relevant parts of the Sectional Title Act, the relevant Regulations, but most importantly the Management & Conduct Rules of scheme(s) within which they own units. Owners should further attend the meeting of their scheme and exercise their voting power. A sectional scheme is governed on democratic principles. Disputes are determined through arbitration, not necessary civil litigation.

 

Revised 17 May 2010

Ownership apathy—a sectional title mental disorder

Or is sectional title ownership fraud by the bystander syndrome? The purpose of this post is to indicate that there is really no grounds for apathy of sectional title owners, but rather a demonstration of real interest is most needed.

"Apathy is a mental state in which the sufferer lacks the desire, will or energy to engage in any activity, whether intellectual or physical. It is variously called indifference, boredom, lassitude, languor, listlessness, laziness, lethargy or inertia. It may be a symptom of mental disorder. It is first alienation of the self from the world and then self-alienation. Finally it is withdrawal from all participation in the care of others and care of oneself. Collectively, apathy may be expressed in social, economic, political or ideological paralysis, with all the available energy for change locked up in the institutions, systems and structures of society."

What is it about sectional title ownership that owners are often characterised by apathy? Could it be that people attracted to sectional title ownership have a pre-disposition towards alienation mental disorder?—I am not serious. However, Political Apathy Disorder (PAD) is proposed as a new DSM diagnostic category for the failure to develop a social conscience.

Apathy is a common reaction to stress where it manifests as "learned helplessness"; it really is a veiled form of anger. Apathy is often the end-result of prolonged deprivation—if earlier reaction of rebellion led to defeat and humiliation, until finally all response seemed to disappear—there is loss of hope with an impoverishment of thinking processes. In contrast, sectional title ownership offers the opposite to helplessness, defeat and loss of hope:

• Before buying into sectional title ownership you have the right to inspect the scheme's finances, management and conduct rules, etc.—This is important because you need to make sure if the environment agrees with you and if there are no financial surprises looming.
• As an owner you are a member of the collective ownership, the body corporate—your voting power directly related to your percentage of ownership.
• You have the right (rather obligation) to attend, speak, make proposals and vote at the general meetings of owners.
• You have the right to nominate persons (not necessary only owners—but the majority must be) to look after your interests by serving as trustees. You have the right to elect from those persons nominated who you believe would best serving your interests.
• You have the right to question trustees; to engage with trustees at their meetings and state your views.
• You have the right to lobby support and if 25% ownership (in value) request a general meeting the trustees are obliged to arrange one. Should they fail, the 25% may proceed to call the meeting.
• Meetings are subject to quorums, meaning that al small group may not just do as they please.
• The trustees need to decide on matters collectively and majority vote or through circulation—no one trustee may decide on her/his own.
• Certain aspects are subjected to special or unanimous resolution, to which stringent criteria of notice and percentage voting apply.
• Should you not be in the position to attend a general meeting, then you have the right to send a proxy instead.

Deprivation, helpless, defeat, reason for loss of hope—I think not. Ignorance, yes most probably.

The bystander syndrome: Kitty Genovese, an American woman who became famous for her murder, was stabbed to death in New York on 13 March 1964. Kitty was driving home around 3.15am. She parked about 30 metres from her front door. As she walked to her door, she was approached by Winston Moseley. Moseley overtook her and stabbed her twice in the back. Kitty screamed. Her screams were heard by several neighbours. But it was a cold night, many had their windows shut and few recognized it as a cry for help. One of the neighbours did shout at Moseley, "Let that girl alone". Moseley ran away and Kitty made her way to her apartment. Kitty was seriously injured, in full sight of her neighbours, but no one helped her.

Some called to the police, but it was not given a high priority, as it was thought she was "only" beaten up. Witnesses observed Moseley get into his car and drive away. He then returned ten minutes later and found Kitty barely conscious at the back of the building. Out of sight, he attached her again, stabbing her several more times. She tried to defend herself, as was shown by knife wounds on her hands. He sexually assaulted her as she lay dying. He also stole money from her and left her to die. The attacks spanned over half an hour. Eventually, a witness did call the police. The police and ambulance arrived, but she died on the way to the hospital.

The media then reported that 38 people had witnessed or heard her attack. The New York Times printed an article - "Thirty Eight who Saw Murder Didn't Call the Police." This led to a media frenzy and much psychological research. What had possessed these witnesses to do NOTHING whilst Kitty was being stabbed and murdered? This psychological phenomenon became known as bystander apathy, the bystander effect or 'Genovese syndrome'. It is basically a phenomenon where someone is less likely to intervene in an emergency situation when other people are present and able to help, than they would if they were alone.

Revised 15 June 2010 with regard to 25% ownership in value: based on the participation quotas.

Use of section restricted to intent

Why does section 44 (g) of the Sectional Titles Act, 95 of 1986 restrict the use of a section for its intended purpose?

• To protect the rights of the members (owners) of the scheme
• If registered for private living purposes, the premises may not be used for business purposes, because of
  • Increased noise and traffic
  • Potential nuisance
  • Potential business rates and taxes

Before an owner or tenant use a sectional title section for purposes other than its intended use, the owner of tenant must obtain written consent from all the owners of other sections in the scheme.

Section 44(1) reads: An owner shall‐

(d) use and enjoy the common property in such a manner as not unreasonably to interfere with the use and enjoyment thereof by other owners or other persons lawfully on the premises;

(e) not use his section or exclusive use area, or permit it to be used, in such a manner or for such purpose as shall cause a nuisance to any occupier of a section;

(g) when the purpose for which a section is intended to be used is shown expressly or by implication on or by a registered sectional plan, not use nor permit such section to be used for any other purpose: Provided that with the written consent of all owners such section may be used for another purpose.

When we wanted to start a virtual Close Corporation, running it from our section and aware of the general poor response rate to sectional title issues, we sent a letter with the wording below to all members of the body corporate: As a matter of courtesy we are hereby, in terms of sections 44 (1)(g) and (2)(a) of the Sectional Title Act, informing members of the Body Corporate of XXXXXX (Scheme No XX of XXXX) that we intend operating a close corporation from section XXX. It is essentially a virtual (computer and Internet-based) micro-business. We give you the insurance that the business will not in any way interfere with your or your tenants' (if applicable) use and enjoyment of individual units or the common property (Sections 44 [1] [d & e] of the Sectional Title Act refers). Would you please acknowledge receipt of this notification and give your written consent to our running XXXXX CC from our unit. Either e-mail your consent or please sign and drop the notification in our mail box at XXXX or fax to XXX XXX XXXX. Any non-responses by XX XXXX 20XX will be taken as a sign of consent. Should you have any queries, please do not hesitate to call XXX XXX XXXX

However, section 44(2) further reads: (a) Any owner who is of the opinion that any refusal of consent of another owner in terms of the proviso to subsection (1) (g) is unfairly prejudicial, unjust or inequitable to him, may within six weeks after the date of such a refusal make an application in terms of this subsection to the Court.

(b) If on any such application it appears to the Court that the refusal in question is unfairly prejudicial, unjust or inequitable to the applicant, and if the Court considers it just and equitable, the Court may with a view to bringing the dispute to an end make such order as it deems fit, including an order that it shall be deemed that the requirement stated in the proviso to subsection (1) (g) is met, an order that the provisions of section 14 of this Act which the Court deems appropriate, shall be applied with reference to the amendment of the registered sectional plan in question, any other supplementary order as the Court deems fit, and an order concerning costs as it deems appropriate.

Obviously, when the intended business might violate your rights in terms of section 44 (1) (d & e) you have the right as owner to assert your rights.

Annual check-up of the state of ‘health’ of a body corporate

So you own a living space within a collective property, you are probably paying dearly off on your bond and a monthly levy for your part-responsibility regarding common property. How can you not be interested in the general state of health of the sectional title scheme? As owner, you have the right to timely receive the relevant documentation about the annual general meeting and to attend. If for some reason you cannot attend in person, you may entrust your rights to a proxy to represent your interests.

When you decide to purchase property in a sectional title scheme you automatically become a member of the body corporate — this is the body comprising all owners of the scheme. Make a point to study the "owner's manual", namely the sectional title act, the regulations and in particular the management and conduct rules relevant to your scheme — the act and prescribed rules are available from the library of Sectional Title Online.

Some as you do go for an annual medical check-up, bold tests, dentistry check, mammogram and gynaecologist check; you should make a point to attend the scheme's annual general meeting — because your interests are at stake.

Each body corporate must hold an AGM within four months after the end of the scheme's financial year (PMR 51 — prescribed management rule).

You are entitled to 14 days notice to the AGM of any special general meeting of the body corporate and if a special resolution forms part of the agenda, 30 days notice (PMR 54).

When the date and time arrived the meeting cannot just commence, there must be a quorum present (PMR 57) in person or by proxy (PMR 67); if not the meeting must be adjourned to a week later (PMR 58).

It is prescribed who chairs the meeting (PMR 59) and how votes are made (PMR 60-66).

There is a compulsory agenda (PMR 56), which includes:

• Tabling of the scheme's audited financial statements for the concluded financial year — this is as important as you cholesterol results or that your mammogram check is clear — what does the scheme's finances look like (perhaps I should write a special post on the basics and what to look for).
• Usually also a report by the chairperson for the outgoing trustees about the accomplishments of the trustees that served since the previous AGM and automatically step down at the current AGM.
• Then the insurance schedule follows. Have a look on which replacement values it is based, when last has a valuation been done — your bold-sugar levels of a decade ago are useless — if your property, for some reason, for example a fire, need to be demolished and rebuilt is it adequately insured?
• The forth and possibly most important compulsory agenda item is the budget for the current financial year (remember you are already about three months into the existing financial year) — the estimated income and expenditure. The body corporate (owner's collectively) is obliged to maintain the scheme, to keep a reserve of funds adequate to pay for bigger expenses and to meet all running expenses during any one year. This budget must be realistic, because nobody other than all the owners — the body corporate — will contribute to the funds required.
• The approved budget determines the monthly levies, based on the participation quota (a formula derived from the size of each section as percentage of the floor space of all the sections together).
• There after the owners agree on the auditor (or in small schemes, the accounting officer) to be used for the current financial year — next AGM's audited financial statements.
• The owners next decide how many trustees they believe are needed to take care of the scheme, on behalf of all the owners. Where after the election of the agreed number of trustees takes place — the AGM notice must include provision for nomination of trustees; if sufficient were nominated, then those persons are automatically elected; if more were nominated then the number just agreed upon, then an election takes place; if insufficient were nominated then persons may be nominated at the meeting (provided they are present to agree to serve). The elected trustees meet soon after the AGM to elect the new chairperson.
• The prescribed agenda makes provision for any special business.
• The body corporate meeting then gives consideration to any restrictions they believe should apply to the new trustees and/or decide on any directives that the new trustees must attend to.
• Finally the domicile of the body corporate is decided upon — that is the address that will be used during the financial year for all official correspondence of the body corporate.

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!



Collective-tolerance in title

Title is a legal term that, among others refers to a formal document (a title deed) that serves as evidence of ownership.

Sectional title involves personal ownership as well as collective ownership of property—it is a bundle of rights and responsibilities. The sectional title deed stipulates which part of a joint property is personally owned and which parts are collectively owned. As sectional title owner, one has accountability towards others to share in the costs with regard to common property and also to maintain your personal property.

Sectional title further involves tolerance, a permissive attitude toward fellow owners whose opinions, practices, race, religion, nationality, etc., may differ from one's own. Tolerance entails a capacity to recognise, to respect the beliefs and the patience to tolerate the practices of others.

If you are not agreeable to collective-tolerance in title you should not buy sectional title property. If you are only interested in investment, rather consider the stock exchange. If you want freedom of responsibility, do not consider sectional title ownership.

Sectional Titles Amendment Bill signed off

The Sectional Titles Amendment Bill has now been signed off by the Portfolio Committee for the Department of Rural Development and Land Reform and would soon become law (25 August 2010).

Deadline for submissions: Friday 13 August 2010, no later than 17:00.

Public hearings at parliament: Tuesday 17 and Wednesday 18 August 2010.

The Sectional Titles Amendment Bill (Download SectinalTitlesAmendmendBill2010) involves changes to three definitions and sections 5, 11, 12, 14, 15, 24, 25, 27, 29, 37, 44, 54 and 60 of the Sectional Titles Act. Download Memorandum_on_the_Objects_of_STAB

Purchasing life rights

Entering into a life rights agreement is entirely different from buying in a sectional title scheme.

The Housing Development Schemes for Retired Persons Act 65 of 1988 serves to protect elderly people when investing in a retirement village that is not a sectional title scheme. The Act specifies what the offer to purchase life rights must contain. By signing a life right agreement one commits to pay the purchase price and consent to having the right to live in the property for the remainder of life, or until you leaving the village. In the case of death or leaving the retirement village a percentage of the original contribution is retained. [Biccari Bollo Mariano Attorneys, October 2010 SS 7/10] In contrast to ownership of part of a sectional title retirement village, there is no purchase of actual real estate — life right entails only the right to live in a specific unit, the ownership is retained by the management company — the basic concept is that an individual pays a sum of money in respect of a specific unit and receives the right to live in that unit for the remainder of their life [Sifiso Msomi of Shepstone & Wylie's property department]. Life Rights assume the form of a lease, not a form of property ownership — the occupant (the agreement holder) has no rights to the title in land, only the right of use. The right to life is the fundamental right and property rights are an extension thereof.

Investors and sectional title ownership

One way to view the investment in sectional title property is to compare it to the buying of unit trusts, in contrast to investing directly in shares or substantial freehold property, the investor buys a unit and owns property together with other investors and residential owners.

Since 2004 there has been a significant growth in demand for sectional-title office and industrial schemes. Similarly, an insatiable demand for quality inner city residential rentals has been experienced. It is believed that there will for decades be a demand for entry-level property, because of employment equity and Black Economic Empowerment drives (which includes foreigners from African countries needing to rent) in South Africa. The popularity of rental-market investment-opportunities appear to be very attractive, based on how rapidly new stock is snapped up, often pre-launch.

However, investors are recommended to tread with caution in dealing with sectional title residential, office and industrial schemes. There are a number of things to consider before making an investment, for example:

• How is the sectional title scheme managed? — The better managed, the more its value will appreciate. Conversely, a poorly managed scheme may result in losing value rapidly if not appropriately intervened.
• Property is not for quick in-and-out investment gains and it is not for the feint hearted either.
• A good managing agent (preferably a member of the National Association of Managing Agents) with a good track record is an invaluable ally to an investor, protecting the interests of investors.
• Make a careful study the financial state of the body corporate of the scheme if buying into an existing scheme:
  • Look for signs of wide scale non- payment or accumulated arrears of levies, because owners of units in such schemes can become liable for the unpaid debts of other owners even if regularly paying and levies up to date
  • Review the audited financial statements for the last three years of the scheme
  • Consider the funds in reserve for maintenance, as well as the historical expenditure and the physical appearance of the buildings and infrastructure
  • Sectional title owners jointly own the land on which the scheme exists but are individually responsible for rates payable to the local authority 
• If investing in a new scheme, make sure the developer driving it is reputable — consider obtaining either legal and/or accounting advice from a knowledgeable professional
• Peruse the scheme's management and conduct rules to make sure there is nothing therein that presents an obstacle or problem
• All investors become owners in the scheme and automatically part of the body corporate, with statutory duties (e.g. Section 44 of the Sectional Title Act) and responsibilities
• As member of the body corporate it might not be viable to attend annual and special general meetings, resulting in being reliant on a proxy to take decisions or not being part of the decision-making
• An experienced social-media-friend and regular commentator on Sectional Titles Online (Anne Greening) added that "investing in ST [sectional title] requires an ongoing involvement and financial commitment from the buyer to ensure that his property is internally maintained; that the rates are paid; the levies are paid; that he receives a rental; and that the complex is properly managed. He will not necessarily have a regular income from his investment, as tenants come and go, and he may be without one for some time. Tenants, no matter how carefully screened, can default on payments, or leave the inside of the house [unit] in need of repairs.  Another aspect is the volatility of the housing market (although this could be said of Unit Trusts, too)."  

Often investors smooth the cash flow of existing schemes in that when owners that are severely in arrears sell, the arrears are recuperated from the value of the sale.

An article by Jennifer Paddock conveniently summarises what investors need to know concerning sectional title scheme ownership. Property Investor Network neatly sums up the role for a Body Corporate by these seven bullet points:

• Budgeting – The Body Corporate must establish funds for administrative expense for the sectional title scheme. That, of course, includes everything from repairs [as well as planned maintenance and occational major maintenance projects] to local authority charges, electrical supply, fuel, sanitary and other services. Basically, everything that is necessary to manage and administrate the complex.
• Set Levies – The Body Corporate must determine levies for owners so that they have enough money to manage and administrate the complex.
• Banking – Yes, the Body Corporate is also obligated to open an account with a financial institution.
• Insurance – The Body Corporate also have the responsibility to take care of insurance and also to make sure it is up to date, all insurances needed of course. It was once found that sectional titles in a scheme did not update their insurance. Each unit was insured at a value less than 30% of the replacement cost. In this case, if the worst happens, for example a fire broke out, the owners would have to pay out some 70% of the total cost of rebuilding their properties. Keeping up with adequate insurance is a very important role that the Body Corporate is obligated to do.
• Maintains Common Property – The Body Corporate must make sure that the common property is maintained, that includes elevators and generally keep the complex or building in good state of service and repair.
• Comply with Authorities – If the authorities ask a body corporate to fix something under any regulations they are responsible to comply.
• Comply with Law – Another interesting point is that body corporate must be in compliance with any law that relates to common property or any improvement of land comprised in the common property [and a whole host of other laws: e.g. Basic Conditions of Employment Act,  Health and Safety laws, Income Tax, UIF, Workmen’s compensation laws, the Older Persons Act and its regulations, and in anticipation the Ombud Act]. This is an interesting one as the members of the Body Corporate, in this function, must by definition understand such laws. If they don't then they should hire someone that does, otherwise they can't really comply with something they don't understand.

Oops, nobody paid the electricity

Apathetic owners within sectional title schemes often do not have a clue about the scheme’s finances. Boldly on the front page of the Roodepoort Record of 24 June 2011 appears the question: “Were trustees grossly remiss?" Some 450 schemes are in a pickle as result of the South Gauteng High Court’s interdict preventing Constantia Sectional Title Management from operating any further. Download Roodepoort Record 24 June 2011 Page 3

Owners annually appoint trustees and entrust the management, administration and control to an elected few. Many owners just don’t bother to attend annual general meeting and appear not to pay much attention to the annual financial audit. Having paid the monthly levy and for all services (e.g. electricity) individually consumed, does not absolve an owner.

 

The Sectional Titles Act, [Act No. 95 of 1986], has been amended 14 June 2011 by the enactment of the Sectional Titles Schemes Management Act, [No. 8 of 2011], Government Gazette Vol 552 No 34367. Perhaps the owners of the 450 schemes mentioned above would show some interest in how this is impacting on their ownership.

 

The long expected Community Schemes Ombud Service Act, [No. 9 of 2011], Government Gazette Vol 552 No 34368, further became a reality on 14 June 2011.

 



Myburgh Brink pointed out on Sun, 26 Jun 2011 at 09:44 that both acts have been signed into law and are on the statute book BUT are not yet in force. The last section of each reads as follows:

STSM Act: §22. (1) This Act is called the Sectional Titles Schemes Management Act, 2011, and comes into operation on a date fixed by the President by proclamation in the Gazette.
(2) Different dates may be fixed in respect of different provisions of this Act.

CSOS Act: §60. This Act is called the Community Schemes Ombud Service Act, 2011, and comes into operation on a date to be determined by the President by proclamation in the Gazette.

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.

My responsibilities as landlord within a sectional title scheme

It is the duty of an owner of a section within a sectional title scheme to ensure compliance of her/his tenants with the management and conduct rules of the scheme concerned. I have done a blog post about landlords/ladies and tenants elsewhere [http://psychsoma.co.za/all_the_single_ladies/2009/10/my-rights-and-my-landlords-rights-when-renting.html#tp] detailing, among others, the importance of the lease agreement. The owner must make sure the tenant understands and adheres to the scheme's rules.

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.

A body corporate is capable of being sued

"Sewage battle to end up in court" reads a caption in a local weekly paper. Download Sewage_battle_to_end_up_in_court_Rdp_Record_29_09_2011

In this regard the Sectional Titles Act (STA), No 95 of 1986, §36(6)(c), as well as the Sectional Titles Schemes Management Act, No 8 of 2011—that would amend and repeal section 36 of the STA—§2(7)(c) reads:

2(7) The body corporate has perpetual succession and is capable of suing and of being sued in its corporate name in respect of—(c) any matter in connection with the land or building for which the body corporate is liable or for which the owners are jointly liable

It would be in the best interest of the owners collectively, or the Body Corporate of Aqua Azure (SS ?? / ????) as legal persona, that the trustees resolve the plumbing and sewage problems.

Sectional Titles Amendment Regulation 2011

Government Gazette No 34639, Notice No R 805, 28 September 2011: Download Gg34639_nn805

Amendments to the following Regulations:

• 5 - common boundary between an exclusive use area
• 6 - boundaries of the sections and common property
• 10 - substitution of the land under a mortgage bond
• 13 - Insertion 13A: replacement schedule for lost or destroyed schedule of servitudes
• 15 - changes whenever the registration of a sectional plan is cancelled
• 16 - issue and replacement of certificates
• 25 - Insertion 25A: replacement of documentation
• 28 - transfer of exclusive use areas
• 30 - management rules may only be amended once there are 30% owners other than the developer
• 34 - sectional morgage bond forms

Amendment of Annexure 8 - Rules: 

• 31 - Insertion of 2A: budget shall coincide with the financial year of the scheme
• 31 - subrule 4 deleted (special levies)
• 36 - itemised estimate of income and expenditure for approval of AGM
• 39(2) - transmitted by facsimile or electronic mail
• 54(5) - inadverted ommision not invalidate supplemented
• 68(v) - purpose for which an exclusive use area elaborated (a-d)
• 71(4) - chief registrar of deeds shall upon written application and subject to payment of the prescribed fee appoint an arbitrator in writing

Owners leasing may comment Rental Housing

Deadline 30 November 2011 at 16:00 for commentary on the Rental Housing Amendment Bill.

Sectional Title segment price index marginal growth

While in Ballito, I read in The Bugle, one of the local papers, the following snippet on page 6 of the 2 December 2011 edition. The FNB 3rd quarter 2011 housing segment review is readily available.

Download FNB_Property_Barometer_Segment_Price_Review_Q3_2011

May a business be based in a residential sectional title section?

The running of a business from home appears to be a recurring issue in sectional title communities. Section 44(1)(g) and 2(a+b) of the Sectional Titles Act, 95 of 1986—quoted below for convenience—states clearly that a section may not be used for business purposes if it is registered for residential purposes. However, it also states that with the written consent of all owners a business may indeed be run from a section. It further adds that if the refusal is deemed unfairly prejudicial, unjust or inequitable the owner may approach the Court for a ruling.

People raise arguments such as security risks; traffic congestion; abuse of common property and/or collective resources; an owner not personally having granted consent; and being illegal to oppose or question the running of a business within a sectional title scheme. A more appropriate argument would be compatibility of permitted uses allowable. The occupants of a section may, for example, through the rules of the scheme be permitted to conduct one or more home accessory activities with certain provisions specified. With regard to compatibility, it is considered important to consider local authority zoning.

The Wikipedia states that the primary purpose of zoning is to segregate uses of property. Zoning is controlled by local governments and used for town planning to preserve the "character" of an area and to prevent new developments from contrasting. The emphasis of zoning land use, for example of the Buffalo City Municipality, is on the coordinated and harmonious development of the city in such a way that it will effectively contribute to the health, safety, order, beauty and general well-being of the city. The Wikipedia identifies five major zoning categories, namely: residential, mixed residential-commercial, commercial, industrial and special. Each zoning category may have a number of sub-categories. A commercial category may physically sub-divide zones for small-retail, large retail, office parks, etc. An industrial area may be separated warehousing, light assembly and heavy manufacturing; and each area may have designated limit for noise emissions.

With regard to the issue of legality of conducting a business from a residentially zoned dwelling three variations exists:

1. No permission is required from the local authority for legally conducting a micro business, such as a one-person show or part-time business. Most South African town planning schemes makes provision for the conducting of a profession or occupation from home; however, it is necessary to differentiate between a free standing property and a sectional title section. Certain criteria exist with regard to a “home enterprise”, of which some would not apply to a sectional title scheme.
2. If a business owner wishes to exceed the basic requirements the owner must in addition to obtaining consent apply from all owner of the sectional title scheme concerned also apply to the local authority for consent, permission or its discretion.
3. Where an owner wants to convert the existing residence to a business building, the owner is prohibited from demolishing the structure without first obtaining permission from the local authority. This kind of business would not be permitted in a sectional title scheme. However, a “dwelling office”—where the section is converted 100 percent internally, without the external appearance being changed—might with the necessary approval and satisfying certain pre-determined conditions, be permitted.

Extract from the Sectional Titles Act, 95 of 1986

Section 44(1)(g) when the purpose for which a section is intended to be used is shown expressly or by implication on or by a registered sectional plan, not use nor permit such section to be used for any other purpose: Provided that with the written consent of all owners such section may be used for another purpose.

Section 44 (2)(a) Any owner who is of the opinion that any refusal of consent of another owner in terms of the proviso to subsection (1)(g) is unfairly prejudicial, unjust or inequitable to him, may within six weeks after the date of such a refusal make an application in terms of this subsection to the Court.

Section 44 (2)(b) If on any such application it appears to the Court that the refusal in question is unfairly prejudicial, unjust or inequitable to the applicant, and if the Court considers it just and equitable, the Court may with a view to bringing the dispute to an end make such order as it deems fit, including an order that it shall be deemed that the requirement stated in the proviso to subsection (1)(g) is met, an order that the provisions of section 14 of this Act which the Court deems appropriate, shall be applied with reference to the amendment of the registered sectional plan in question, any other supplementary order as the Court deems fit, and an order concerning costs as it deems appropriate.

Without active ownership, accountability doesn’t exist

Accountability of the trustees (and the managign agent) of a sectional title scheme is determined, first of all, by how committed and involved owners are. If only a few owners attend annual general meetings (barely making a quorum); and if from those in attendance the few willing are 'elected' by default as trustees; and if the majority of owners do not play an active role; then accountability doesn’t exist. So the onus, in essense, does not rest with the managing agents (as many owners appear to think). Accountability can only be enforced if the majority of owners show a tangible interest in the matters pertaining to the collectively owned property. Trustees are then not only held accoutable, but also empowered to fulfil their statutory role. Apathy, on the other hand, is demoralising.