INTRODUCTION TO SECTIONAL TITLES, HOMEOWNERS ASSOCIATIONS & MYSTRATA

Transcription

1 MSTS101 INTRODUCTION TO SECTIONAL TITLES, HOMEOWNERS ASSOCIATIONS & MYSTRATA Copyright Mystrata South Africa Pty Limited 2014 Version 1.0 (February 2014) STUDENT WORKBOOK

2 COURSE OUTLINE CONTENTS 1.0 WHAT ARE SECTIONAL TITLES AND HOMEOWNERS ASSOCIATIONS? SECTIONAL TITLE SCHEMES HOMEOWNERS ASSOCIATIONS INTERNATIONAL PERSPECTIVE RELEVANT LEGISLATION TERMINOLOGY SECTIONAL TITLES HOMEOWNERS ASSOCIATIONS SUBDIVISION BOUNDARIES DEVELOPER PARTICIPATION QUOTAS EXCLUSIVE USE AREAS BODY CORPORATE / HOMEOWNERS ASSOCIATION TRUSTEES AND DIRECTORS RULES MANAGING AGENTS INSURANCE LEVIES ANNUAL LEVIES SPECIAL LEVIES DISPUTES Page 2 of 34

3 7.1 SPECIALIST TRIBUNALS LITIGATION ARBITRATION SALES AND PURCHASES MYSTRATA STRATAWARE MYCOMMUNITY MYSTRATA HELPDESK Page 3 of 34

4 1.0 WHAT ARE SECTIONAL TITLES AND HOMEOWNERS ASSOCIATIONS? 1.1 SECTIONAL TITLE SCHEMES Sectional or strata title is a form of ownership originally devised for multi- level apartment blocks and horizontal subdivisions with shared areas. The term strata' refers to areas being on different levels, or strata. The term section refers to a part of a building that can be owned separately from other parts. In South Africa, sectional title ownership is used not only for stratified ownership in multi- storey buildings but also for ownership of semi- detached and entirely detached buildings in a single development. A development may be residential, retail, commercial, industrial, resort or of any other type. Sectional title schemes are composed of individual sections and common property. Sections are apartments, homes, garages, storerooms or other areas and each is shown on the sectional plan. Common property is defined as everything else in the development that does not form part of a section, such as common stairwells, driveways, roofs, gardens and so on. Each sectional title scheme has a body corporate that is responsible for the control and management of all the sections and common property. Every owner of a section in the scheme is automatically a member of the scheme s body corporate. 1.2 HOMEOWNERS ASSOCIATIONS Homeowners associations, often described as gated villages, are property developments in which there are separate individual properties managed by a single association to which the owners of all the individual properties must belong. All the infrastructure in the development is registered in the name of the homeowners association that may be either a non- profit company or a common law association. The homeowners association controls and manages the individual properties and its own property in the development. In Australia, these types of developments are referred to as community titles. 1.3 INTERNATIONAL PERSPECTIVE Strata title was first introduced in 1961 in the state of New South Wales, Australia, to address problems experienced with the shared use of buildings. Previously, the usual method of arranging for permanent rights in regard to the shared use of a building was company title, which suffered from a number of defects, for example the difficulty of obtaining individual mortgages. Page 4 of 34

5 The New South Wales strata titles legislation has been used as a blueprint for similar legislation in the other Australian states. Sectional title, modelled on the New South Wales legislation, was introduced in South Africa in Other countries that have adopted the Australian system (or a similar variant) of apartment ownership include: Canada (Alberta and British Columbia), Singapore, Namibia, Indonesia; Malaysia; Fiji; Botswana; Philippines; India; Dubai; United States of America (state specific regulations); New Zealand; Belgium; Lebanon and Jamaica. Sectional title schemes and homeowners associations use different legal arrangements to accomplish the same goal, the management of individual and shared property as well as common assets within communities for the mutual benefit of all parties. 2.0 RELEVANT LEGISLATION The original Sectional Titles Act, No. 66 of 1971, came into operation in This statute was regularly amended until 1986 when it was replaced by the current Sectional Titles Act, No. 95 of 1986 that came into operation in This legislation applies to the whole of South Africa and is regularly amended. There is no national legislation that deals with the formation of homeowners associations. In the course of approval of the subdivision of large tracts of land when, as is usual for middle and upper class housing developments, the local municipality does not want to be responsible for the maintenance of the development s infrastructure, it will impose as one of the conditions of subdivision a requirement that the developer must establish a homeowners association to take transfer of the infrastructure and manage the development. Homeowners associations are formed either as non- profit companies or as common law associations. Page 5 of 34

6 The Sectional Titles Schemes Management Act, No. 8 of 2011, when this is brought into operation, will govern the management of sectional title schemes. Issues in regard to the administration and management of both sectional titles schemes and homeowners associations will be dealt with under the Community Schemes Ombud Service Act, No. 9 of 2011, when this comes into operation. 3.0 TERMINOLOGY 3.1 SECTIONAL TITLES A sectional title development involves the subdivision of land and the buildings on the land into sections and common property. The sections comprise the houses, apartments or other buildings that are intended for separate ownership, while the common property comprises the foundations, roofs and exterior envelopes of the buildings, the land below and around the buildings, any buildings that are designed for communal use and ownership (such as a clubhouse) as well as any common facilities within the buildings (such as foyers, elevators, stairs, landings, open garages and driveways). Sections are usually enclosed by floors, walls and ceilings, but they can be open areas within a building (such as parking bays in an internal garage). They are shown on a sectional plan drawn by a land surveyor, approved by the local Surveyor- General s office and registered at the local Deeds Registry. The common property is everything in the development other than the sections. Because of this approach, the sectional plan does not actually define the common property, although there are areas on the plan that are specifically marked as common property so as to avoid any confusion as to their legal nature. It is the responsibility of the owner of a section to maintain and repair his or her section. The body corporate, to which all owners of sections must belong, is responsible to maintain and repair all the common property. Sometimes there are pipes, wires, cable and ducts located within a section but which serve other sections or the common property. These must also be maintained and repaired by the body corporate. If there is a geyser on the common property that serves one or more sections, the owners of those sections must maintain and repair that geyser. Each owner of a section also owns an undivided share of the scheme s common property. The extent of this share is shown as a decimal fraction in the participation quota schedule in the scheme s sectional plan. An owner s section, together with his or her undivided share in all the common property is known as a unit and it is a unit that is sold to, purchased by, usually bonded by and registered in the name of a sectional owner. Page 6 of 34

7 3.2 HOMEOWNERS ASSOCIATIONS Homeowners associations involve the horizontal subdivision of land into individual properties that are sold to individual owners, normally for the purpose of building a home. The balance of the land comprises access roads, open space and recreational facilities (such as swimming pool, tennis court, clubhouse, etc.). The lots or erven are defined in the same way that conventional land parcels are defined, by way of an individual diagram and a general plan. The balance of the land is registered in the name of the non- profit company or common law association that is formed to manage the development. The owners of the individual properties are obliged to maintain and repair them and the buildings on them, while the homeowners association maintains and repairs the land and improvements that are registered in its name. 3.3 SUBDIVISION Sectional title subdivisions cannot be undertaken until the building structures are in place. This is because the land surveyor uses the physical structure (floors, walls and ceilings) to define the boundaries of the sections. Once the buildings are sufficiently complete to be measured, the land surveyor can complete the draft sectional plan and submit it to the local Surveyor- General s office for examination and approval. Then the person who owns the land, known as the developer, can apply to have the approved sectional plan registered at the local Deeds Office. On registration, the sectional subdivision takes effect, a sectional title register is opened for the scheme and separate titles are issued to the developer for each unit. The developer transfers the units to the individual purchasers either simultaneously with the opening of the register or thereafter. Homeowners association subdivisions are not dependent upon buildings being completed. They involve normal survey techniques and can be completed and approved once access roads and services are in place and have been approved by the local municipality. When a general plan of subdivision has been approved by the local Surveyor- General s office and the local municipality has certified that the conditions of subdivision have been complied with, the owner of the land, again referred to as the developer, can apply to have the subdivision registered at the local Deeds Registry. On registration the individual properties belong to the developer who transfers them to the individual purchasers. Building activities on the various erven do not usually begin until the subdivision has been registered at the local Deeds Registry. Page 7 of 34

8 3.4 BOUNDARIES Unless a scheme s approved and registered sectional plan indicates otherwise, the boundary between a section and any other section or the common property is the centre of the walls, floors and ceilings enclosing the section. Where parts of a section are not enclosed, the boundaries are usually defined with reference to the nearby walls, floors and ceilings, or other physical structures. The boundaries of the individual properties in a homeowners association are shown on an approved and registered general plan of subdivision. 3.5 DEVELOPER The units in a sectional title scheme and the individual properties in a homeowners association are initially owned by the developer, the person who was the registered owner of the land immediately before it was subdivided. The developer transfers the units or the individual properties to the first purchasers. 3.6 PARTICIPATION QUOTAS Each section in a sectional title scheme has a participation quota. In an entirely residential scheme the participation quotas are calculated on the basis of the measured floor areas of the sections. In a mixed- use scheme the participation quotas allocated to non- residential sections may be calculated in any way the developer decides, but the total participation quota allocated to the sections in any residential component of the scheme must be divided amongst them on the basis of their floor areas. The last page of the registered sectional plan is a Participation Quota Schedule that lists the participation quota of each section, expressed as a percentage expressed to four decimal places, e.g When added together they equal 100 percent. In schemes registered before 1 June 1988, the participation quotas are shown as decimal fractions, e.g. 0,1234, so that when they are added together they equal 1. The participation quotas determine: Size of the share of ownership of the common property Value of vote when votes are counted by value Contributions (or levies) payable It is possible for the rules of a sectional title scheme to modify these effects of the participation quotas. Page 8 of 34

9 3.7 EXCLUSIVE USE AREAS In a sectional title scheme, parts of the common property may be made subject to rights of exclusive use. This means that while all owners of sections own the area subject to these rights, only the person or persons who hold the exclusive use rights are entitled to occupy and use the area. Areas such as parking bays, yards, gardens and storerooms are often designated as exclusive use areas. These areas are either shown on a scheme s registered sectional plan or described in a scheme rule with an attached scale plan. When exclusive use areas are shown on the sectional plan for the scheme they must be included in the title deeds issued to the purchaser on transfer. In this case the exclusive use rights can be mortgaged together with the ownership rights in the unit. There is no participation quota allocated to an exclusive use area, so the holder of exclusive use rights does not pay a conventional levy. However, the rules of the scheme may provide for additional contributions on account of these rights and in any event the holder is obliged to refund to the body corporate any of its expenses incurred in doing maintenance and repairs to that area. 3.8 BODY CORPORATE / HOMEOWNERS ASSOCIATION When the developer of a sectional title scheme transfers the first unit to any other person, a body corporate is automatically formed and the Registrar of Deeds issues a certificate confirming its establishment. The body corporate for a sectional title scheme is very much like a common law association. The body corporate is obliged to manage and administer the entire scheme. The common property, while it is registered in the names of the owners of sections as part of their units, automatically becomes the responsibility of a body corporate. In a homeowners association development the developer must arrange for the establishment of the entity that will act as the homeowners association. This may be done by the formation of a non- profit company under the Companies Act, 2008, with a Memorandum of Incorporation (formally referred to as Memorandum and Articles of Association) or by the establishment of a common law association on the basis of a written constitution. The developer then transfers to the homeowners association the land on which the access roads, open spaces, recreational facilities and any other development infrastructure is located, and it is obliged to maintain and repair these areas. In both cases the developer should attend to the initial setup and administration of the development and then hand over the ongoing administrative duties to the body corporate or homeowners association at its first general meeting. Page 9 of 34

10 The body corporate or homeowners association obtains the funds it needs to discharge its administrative, secretarial and physical management functions by imposing levies (or contributions) on the unit owners or the owners of individual properties LAYERED DEVELOPMENTS Some developments are layered in that they incorporate more than one sectional title scheme and/or homeowners association, with subsidiary schemes being members of a master scheme. Particularly in large centrally managed developments with different uses and distinct precincts, two layers (or tiers) of management entities are not uncommon and some schemes even have three or more layers. Example: A large piece of land is subdivided into 6 development erven (each intended for further subdivision) and common areas (comprising roads, open space and recreational facilities). A Property Owners Association is established to serve as the over- arching master or principal management association. It takes transfer of and becomes responsible for the maintenance and repair of the infrastructure that lies outside and serves the subsidiary schemes. Its members are representatives of the subsidiary schemes. The developer, as the owner of the 6 development erven, is initially in control of the Master Property Owners Association as well as all the homeowners associations and sectional title schemes in the development. The 6 buildings the developer builds on the development erven comprise: 1. Hotel 2. Shopping centre 3. Office building detached houses, 50 of which are smaller homes for retired persons 5. High- rise apartment building 6. Mid- rise apartment building Erf 2 is not subdivided but sold to an institutional property investor. Erven 1, 3, 5 and 6 are developed as sectional title schemes, each managed by a separate body corporate. Erf 4 is developed as a homeowners association that includes a sectional title scheme for the retirement homes. Once the developer has sold its interests in the various parts of the development, the members of the Master Property Owners Association will be the owner of the shopping centre, the sectional title bodies corporate and the homeowners Page 10 of 34

11 association. The body corporate of the sectional title retirement development will be a member of the homeowners association. The subsidiary bodies corporate and homeowners association are responsible for the common areas within their developments, but not the common areas outside them. Each subsidiary scheme is able to make decisions in regard to its own affairs and must recover from its members levies to fund the maintenance and repairs to its common or communal property. Each subsidiary scheme and the owner of the shopping centre must make contributions to the Master Property Owners Association s costs of maintenance and repairs outside the 6 development erven PHASED OR STAGED DEVELOPMENTS Both homeowners associations and sectional title subdivisions can be developed in phases or stages, typically when the developer requires the proceeds of the sale of a part of the property to fund the installation of infrastructure and the cost of building on the other parts. In a phased scheme there is only one management body, either a homeowners association or a sectional title body corporate. In a phased sectional title scheme, a separate sectional plan is required for each phase, but no new body corporate comes into existence on the registration of the sectional plans for the second and subsequent phases. The jurisdiction of the original body corporate is extended to include the sections and common property in the additional phases. Similarly a separate general plan is required for each phase of a homeowners association and the additional erven shown on each general plan are administered by the original homeowners association CREATION OF SEPARATE COST AND ADMINISTRATIVE CENTRES IN SCHEMES It is possible to adjust the governance documentation of a homeowners association or sectional title scheme to provide that particular expenses will be borne by some but not all of the owners. A provision for separate administration and/or cost centres may be made where the scheme has a number of distinct use areas with different cost structures or where only some of the owners use a particular part of the scheme and are to be held liable for its costs of operation. If a sectional title scheme includes different segments, such as residential, commercial, hotel and retail segments in a city- centre block, the developer may amend the scheme s management and conduct rules to provide for separate sets of trustees who decide on matters that only affect their segment, but meet with the trustees elected by the other segments to Page 11 of 34

12 decide on matters that affect the block as a whole. Typically such a scheme would also have separate budgets and levies for each segment. The same principles can be applied within a homeowners association when it makes sense to operate parts of the scheme separately from an administrative or financial perspective. 3.9 TRUSTEES AND DIRECTORS Every sectional title body corporate has trustees. The trustees operate like the board of directors of a company. They have functions and powers set out in the Sectional Titles Act and in the scheme s rules. Some important scheme management decisions are however reserved for the owners in general meeting. The trustees powers are not as extensive as those of the board of directors of the average company. The trustees are responsible for formulating policy for consideration by the body corporate in general meeting. Once the policy is set, the trustees are responsible for ensuring that they and the body corporate agents and employees implement that policy. The only mandatory office bearer in the trustees is the chairperson. There is no obligation on them to elect a secretary or a treasurer. Because the trustees are usually volunteers, a professional managing agent often assists them. The executive body of a homeowners association is a board of directors, in the case of a non- profit company, and trustees in the case of a common law association. If the constitution or Memorandum of Incorporation of a homeowners association is modelled on the provisions in the Sectional Titles Act and its prescribed rules, as is often the case, the homeowners association will operate much like a sectional title scheme. However if it is modelled on a traditional company, the executives will have far wider powers and will not often require the approval of the owners in general meeting to make decisions. Where a sectional title scheme is a subsidiary scheme in a layered development, its functions and powers may be assigned to master home or property owners association RULES All sectional title schemes and homeowners associations have rules. Potentially, every sectional title scheme may have different management and conduct rules, but in practice the vast majority of schemes are governed by the prescribed management rules. Some schemes have additional management rules and many have expanded conduct rules. In order to be valid, sectional title scheme rules must be reasonable and they must apply equally to all units put to the same purpose. The content of the rules is restricted to matters Page 12 of 34

13 involving the control, management and administration of the common property, and in some cases, the sections. The level and scope of control through the rules is therefore limited. All a scheme s rules are filed at the local Deeds Registry. Scheme rules supplement the provisions in the Sectional Titles Act and provide administrative and behavioural obligations and restraints that bind the body corporate as well as the owners and occupiers of units in the sectional title their community. They are therefore important and should be investigated as part of the purchase process. For example, if a purchaser has a cat, they need to ensure that the scheme conduct rules do not prohibit the keeping of animals on their sections. More usually, written trustee consent, which may include conditions, is required to keep the cat. In this event the purchase contract could be made conditional upon the consent being granted EXCLUSIVE USE RULES As indicted in 3.7, parking bays and other common property spaces such as storerooms and domestic quarters in sectional title schemes may be allocated for exclusive use by unit owners by means of a rule. The existence of these rules is important from a management perspective not only because they give specified owners use rights but because they may specify what amounts those persons have to pay as additional contributions on account of those rights RULES THAT MODIFY THE EFFECTS OF THE PARTICIPATION QUOTAS A sectional title scheme can make rules that change the value of an owner s vote or the extent to which an owner is liable to make contributions to the body corporate s expenses. These rules must be taken account of in the calculation of owner levies. The constitution or Memorandum of Incorporation of a homeowners association will always include a provision that allows either the members or the executive body to make rules in regard to the use and enjoyment of the scheme infrastructure and communal facilities as well as in regard to any alteration of the appearance of the buildings on the individual erven in the development. In addition, where owners buy vacant lots and build their own homes in the development, there will always be a set of architectural guidelines that contain specific directions and restrictions as to the design and appearance of new buildings and alterations. 4.0 MANAGING AGENTS A large sectional title scheme or homeowners association may employ a manager and staff to assist the trustees or directors to deal with the financial, secretarial and administrative tasks involved in running a scheme. More usually the trustees or directors will engage the services of a managing agent. They will then delegate to that managing agent certain powers, authorities, duties and functions. These Page 13 of 34

14 functions are primarily of a clerical or "record keeping" and organisational nature. As an agent, a managing agent has a fiduciary duty to the body corporate. This means that, apart from their agreed fees and remuneration, managing agents cannot receive any benefit from any dealing in which the body corporate is involved unless that benefit is properly disclosed to and approved by the body corporate. If a sectional title scheme is unable to manage itself, usually because the trustees are unable to properly perform their functions, the High Court may appoint an administrator to manage the scheme. An administrator is often given very wide powers, to the exclusion of the owners themselves. Usually a court appointed administrator will in turn appoint a managing agent to assist in rehabilitating the scheme. Common functions performed by a management company include (but are not limited to): Formulating a financial budget Issuing levies/service charges to owners Collection of levies and charges Payment of invoices Tendering for work Monitoring of contracts and contractors Calling for and holding meetings Keeping of records in accordance with regulations Communication with owners, trustees and tenants One can generally group the functions performed by a scheme manager into three key categories: 1. Communication 2. Accounting 3. Contract Management Successful management companies will have processes, internal procedures and software in place to address those three categories. Mystrata has also used these categories when creating systems to assist the industry. 5.0 INSURANCE Owners need to understand how insurance arrangements work in sectional title and community title schemes. A homeowners association insures only the improvements on the property it owns, not the individual properties in the development. The individual owners are responsible to insure the buildings on their properties as well as all their contents and the other movables on the property. Page 14 of 34

15 In a sectional title scheme the body corporate is responsible to insure all the buildings to their full replacement value, but not their contents. In practice the insurance policies available for sectional insurance will usually cover the fittings in each section, such as kitchen cupboards, fitted carpets and geysers. However trustees and owners need to be aware of the extent of the cover obtained for items that fall within the boundaries of a section. A sectional title body corporate must obtain cover of at least R ,00 against the risk to the trustees and body corporate of liability for accidents that occur on or about the common property and result in death, injury or illness to any person, as well as loss of or damage to property. The owners may also decide to obtain fidelity insurance cover against loss due to theft or fraud. 6.0 LEVIES In a homeowners association the elected directors normally set the annual budgets on which levies are calculated and also have the power to raise additional amounts from owners as necessary. In those homeowners associations where the governance documentation is based on the Sectional Titles Act and its prescribed rules, owners will approve the annual budget. In sectional title schemes there are annual and special levies. 6.1 ANNUAL LEVIES The level of funds required to run a body corporate is determined each year in a budget approved by owners at the Annual General Meeting. This budget is then used to determine the level of levies that should be imposed on unit owners. A separate reserve fund (sinking fund) is not yet a statutory requirement (it will be when the Sectional Titles Schemes Management Act, No. 8 of 2011, comes into operation), but owners are required to include in the budget a reasonable amount for the costs of future maintenance and repairs to the common property. Annual levies are imposed by way of a trustee resolution based on the approved budget and notices of the levies are served on all owners. They are payable in such instalments as the trustees decide (usually monthly) before a specified date. If they are not paid on time, penalty interest is imposed at a rate determined by trustee resolution and the body corporate can sue to recover the amount owing as well as all the legal fees. 6.2 SPECIAL LEVIES If during the course of a financial year it becomes necessary for the trustees to raise funds to cover some unbudgeted expense, they are entitled to take a resolution raising a special levy. Notices of the special levy are served on owners and are payable in the same way as general levies. Page 15 of 34

16 7.0 DISPUTES Communal living, whether in an apartment building or a homeowners association, involves higher density living than conventional land subdivisions. It also involves the sharing of services and facilities. This results in an environment conducive to disputes and disagreements. 7.1 SPECIALIST TRIBUNALS It is therefore not surprising that three Australian jurisdictions have established specialist dispute resolution regimes. They each involve a quasi- judicial "paper based" adjudication process from which an appeal lies to a special tribunal or to the mainstream court system. For example, in Queensland, a commissioner oversees a dispute resolution process, under which adjudicators determine disputes by making orders. An appeal lies against the decision of an adjudicator to the District Court, but only on questions of law. In contrast, in New South Wales, the appeal from an adjudicator's order is to a special tribunal (the Consumer, Trader, and Tenancy Tribunal) "as of right" and then to the Supreme Court on a question of law. If an adjudicator's order is not obeyed, then the person against whom the order was made commits an offence and is liable to prosecution and a fine. In some circumstances disputes can be taken directly to the Supreme Court. A registrar can only refer a matter to an adjudicator if the registrar is shown that the applicant has made an official request for mediation to the respondent, though neither the applicant nor respondent has an obligation to attend the mediation. In Dubai the Real Estate Regulatory Authority ( RERA ) oversees the dispute resolution process, determines the outcomes and enforces the ruling. In South Africa the Community Schemes Ombud Service Act, No. 9 of 2011, provides for the resolution of disputes in all forms of community schemes, including homeowners associations and sectional title schemes. But until this specialist dispute resolution mechanism comes into operation, resort to the High Court is often the only avenue available. High Court proceedings for these types of disputes are expensive and can take a long time to resolve. 7.2 LITIGATION Homeowners associations and sectional title bodies corporate can sue and be sued, both in relation to civil and criminal matters. In some jurisdictions there are restrictions on the commencement of proceedings without a vote of a general meeting. In South Africa the only limitation of this sort is that a scheme cannot sue the developer without the authority of a special resolution. Care needs to be taken when commencing serious legal proceedings. Bodies corporate and homeowners associations do not have a good track record in weathering the substantial costs involved in serious court proceedings. Legal proceedings can Page 16 of 34

17 be a cause of disharmony within a scheme and should only be undertaken where there are no alternatives and there is a clear resolve on the part of the scheme to see the proceedings through. 7.3 ARBITRATION The governance documentation for most homeowners associations provides for arbitration of disputes. Similarly the prescribed management rules that apply to sectional title schemes include an arbitration provision. While arbitration is generally considered to be cheaper and quicker than litigation, this is only the case where the parties and the arbitrator all cooperate to make it so. In extreme cases it can be much more expensive than litigation, which was one of the reasons that the South African government did not consider arbitration a suitable solution and decided to introduce the Community Schemes Ombud Service. 8.0 SALES AND PURCHASES Sectional title and homeowners association properties are bought and sold in much the same way as other parcels of land are bought and sold. Because of the body corporate or homeowners association and its levy process, these transactions usually involve a special sale contract or special conditions in the normal sale contract. However, the existence of the body corporate or the homeowners association presents additional difficulties for a purchaser and their financier. Because owners in sectional title schemes and in homeowners associations must contribute funds to the scheme in sufficient amounts to enable it to discharge its liabilities, the legal position of the body corporate or homeowners association is akin to that of an unlimited liability company. That is to say, the owners are liable to discharge the body corporate or homeowners association's debts and successive levies can be imposed until sufficient funds are available, even if this means that one or more of the owners are forced into bankruptcy. Add to this the fact that a purchaser automatically becomes a member of the body corporate or homeowners association when their transfer is registered and it will be appreciated that purchasers should be very concerned to ensure that there are sufficient funds in the scheme s bank account to discharge its liabilities If this is not the case, then the purchaser will have to make up their share of the deficiency once they are registered as the owner of the property they are purchasing. Clearly, this is also a matter of concern for a financier who, in the event of a default under their mortgage, may need to foreclose on the property and arranged for its sale by public auction. In this event the liability for any unpaid levies will reduce the amount available when the property is realised. Page 17 of 34

18 In practice, banks usually do a "due diligence" exercise in respect of the body corporate before agreeing to advance mortgage finance on security of a property in a sectional title scheme or homeowners association. This is usually done by obtaining copies of the scheme s latest financial statements and perhaps also by obtaining a statement of solvency. Purchasers should also ensure that they know the financial position of the scheme before buying in. This process should only be undertaken personally by purchasers who are confident that they know exactly what to look for and the records that need to be examined. 9.0 MYSTRATA Mystrata are the developers of a leading cloud management technology for the international strata, sectional title & condominium management industry and have been in business since The business has offices in Australia, Dubai, Malaysia and South Africa. Mystrata s main business applications and consulting services are: Strataware a comprehensive online management and financial system for sectional title and homeowners association management. MyCommunity a separate web portal for owners, board members, tenants and managers in each scheme that links to Strataware. This portal can also link to other back- end accounting systems. Web site design and customised software development. Integration of third party systems including payment gateways, banking, facilities management, CRM, project management and corporate accounting systems. Strataware and MyCommunity are used by over 100 professional management companies and developers throughout Australia, Malaysia, the Middle East, the Caribbean, Belgium and South Africa, including public company developers Emaar & ALDAR. Countries currently serviced by Mystrata include: Australia New Zealand South Africa Botswana Jamaica Lebanon Dubai Abu Dhabi Qatar Oman Belgium The Caribbean Malaysia 9.1 STRATAWARE Strataware is Mystrata s flagship application used by community and portfolio managers to manage the financial and administrative affairs of the schemes in their portfolios. Page 18 of 34

19 Strataware is a feature rich desktop style application that is delivered over the Internet. As the system holds a great deal of sensitive information, including bank account details, other financial information and property owner contact information (including phone numbers of many VIPs!), security is a primary concern. The initial handshake authentication is conducted at 2048 bit encryption. Information is then transmitted using 256 bit SSL encryption and is further wrapped in our plugin layer for additional security. This makes Strataware s infrastructure highly secure. Security is further enhanced by the user administration tools provided to ensure that users have appropriate passwords, change their passwords frequently and can only access those parts of the system allowed by their user permissions PORTFOLIO MANAGEMENT Many of the tools within Strataware are geared towards the management of portfolios of communities. When a user first logs into the system, they are greeted by the dashboard system giving them access to the communities within their portfolio, or the communities that their administrator allows them to view. Page 19 of 34

20 9.1.2 ACCOUNTING The backbone of Strataware is an accounting system designed specifically for sectional title schemes and homeowners associations. It is designed to enable users to operate property accounts in accordance with local jurisdiction regulations as easily as possible. Features of the accounting system include (but are not limited to): Accrual accounting Cheque printing (bank dependant) Excellent reporting Management fee invoicing Automatic bank reconciliation (bank dependant) Specialised levy/service charge invoicing system Multiple investment account support Individual owner ledgers Automatic calculation and application of penalty interest Budgeting tools INSURANCE Insurance is one of the most important aspects of community management around the globe. Page 20 of 34

21 Strataware has a screen dedicated to recording, at the field level, all details of the insurance policies held by a sectional title scheme or homeowners association as well as the ability to upload copies of the policies. This information is then published on the MyCommunity web portal for owners of the community to view. Insurance claims tacking and history is also captured in the system. Page 21 of 34

22 9.1.4 REGISTERS Strataware includes various registers in order to record information specific to the community. Common registers include: Assets Common Area/Property Authorities Contracts & Agreements/Engagements Complaints Rules Insurance Claims Page 22 of 34

23 9.1.5 COMMUNICATION Communication is one of the single most important aspects of sectional title and homeowners association community management. Strataware makes this task easy by providing the manager with tools to quickly create letters or s to various groups such as owners, trustees / board members, tenants or contractors. Page 23 of 34

24 9.1.6 DOCUMENT MANAGEMENT For every sectional title or homeowners association community, Strataware automatically creates a folder structure that ensures consistency in filing across your organization. However Strataware s document management system ( DMS ) is more than just a system that creates a file storage structure. The system tracks documents generated by users and stores searchable metadata for each file. Page 24 of 34

25 9.1.7 FEATURES, FEATURES, FEATURES! Strataware has many additional features including: Work order system Sundry invoicing Global address book Meetings module Portfolio reporting Activities management User security Management agreement functions Management fee invoicing Disbursement fee tracking tracking And more! Page 25 of 34

26 9.2 MYCOMMUNITY MyCommunity provides each sectional title or homeowners association community with their own website, but it s much more than that. This is a fully integrated extension of Strataware. MyCommunity provides trustees / boards / committees, owners and tenants access to information relevant to their community. It allows community managers to give their clients an unrivalled level of service, transparency and social interaction FRONT END The front end or public aspect of MyCommunity is a website for the community. Page 26 of 34

27 9.2.2 SECURE ACCESS Once a trustee / board / committee member, owner or tenant logs into the community website, the true power of MyCommunity is realised. User access levels are controlled based on a user s role within the community as loaded in Strataware. Once logged in, users they are provided with appropriate information based on their permissions. Page 27 of 34

28 9.2.3 REVIEW LEVY CHARGE HISTORY One of the key features of MyCommunity allows owners to view their levy/service charge history or statement at any time. Page 28 of 34

29 9.2.4 TRUSTEE/BOARD ACCESS TO REPORTS MyCommunity enables a manager to give trustee, board or committee members access to general ledger transaction lists and balance sheets in an automated and secure environment. Page 29 of 34

30 9.2.5 DOCUMENTS Documents can be uploaded directly to the scheme s MyCommunity site, or published via Strataware s Document Management System. Page 30 of 34

31 9.2.6 SOCIAL INTERACTION The social media revolution has changed the way people communicate, it has also raised expectations in regards to web- based technologies. MyCommunity gives trustees, board and committee members, owners and tenants a place in which to air their views by providing a Community Wall. The wall works in much the same was as Facebook does, enabling members of a community to share ideas in a secure environment under the control of the manager. Page 31 of 34

32 9.2.7 FEATURES, FEATURES, FEATURES! MyCommunity provides access to many more features than listed above, including: Access to important community dates (financial year etc.) Community insurance details Lists of trustee/board members Lists of service providers Trustee/board access to financial statements Maintenance/security request functions Messaging facilities User profiles And more! Page 32 of 34

33 9.3 MYSTRATA HELPDESK The primary method of support provided by Mystrata is our online Helpdesk system which is accessible by clicking the Support link on or directly by going to Page 33 of 34

34 Mystrata Pty Limited Phone: Fax: Mystrata South Africa Pty Limited Phone: Fax: Mystrata Middle East FZ LLC Phone: Fax: Mystrata Malaysia Sdn Bhd Phone: Fax: Since 2001, Mystrata has been developing and supporting great technology for sectional title, strata and homeowners associations. Professional managers, developers, trustees, directors, property owners and tenants throughout Australasia, the Middle East and South Africa use our software Learn more about Mystrata at or on your favourite social media site Page 34 of 34