Presented By: Marius Van Rensburg

Presented By: Marius Van Rensburg

For more information, feel free to contact our offices at conveyancers@schindlers.co.za or on 011 448 9600

The Concept of Shared Ownership The Sectional Titles Act of 1971 (repealed and replaced by the 1986 Act) introduced the concept of shared ownership. The Act introduced the concept of ownership of a Unit comprising a section and an undivided share in the common property. Prior to the Act there was no provision in our law for the shared ownership of immovable property in undivided shares. Prior to the Act, legislation such as the Share Block Control Act was used.

Sectional Title Schemes Management Act, 2011 Introduced on 7 October 2016 - significant changes to the laws relating to and the manner in which sectional title schemes are managed and regulated; The STSMA repealed and amended various sections of the Sectional Titles Act No. 95 of 1986, most notably those referring to the management of a scheme; Introduces for the first time in sectional title legislation reference to the ombud and chief ombud.

Establishment of Sectional Title Schemes Freehold property is converted in the deeds registry to sectional title property by means of an application to the deeds registry to establish a sectional title scheme on that property; Amongst the various documents filed together with such application will be the sectional title plans. The sectional title plans are drawn by a land surveyor and approved by the Surveyor General. The sectional plans will indicate the section, common property and any exclusive use areas.

Establishment of Sectional Title Schemes In the event of doubt as to the position of any of the aforementioned, the sectional plans must be consulted; Bear in mind that the door numbers on the unit may differ from the deeds registry section number. Both should be recorded in the sale agreement.

Sectional Title Office: Deeds Registry Each deeds registry will contain a sectional title office. When a sectional scheme is established a file for each scheme is opened and will contain all documents related to that scheme including the sectional plans, rules and documents relevant to the establishment of the scheme; The deeds registry is a public office and any of these documents can be viewed by any person. Note that going forward it is the function of the chief ombud to house and preserve the scheme documents including the rules of the Scheme.

Sectional Title Office: Deeds Registry Each deeds registry will contain a sectional title office. When a sectional scheme is established a file for each scheme is opened and will contain all documents related to that scheme including the sectional plans, rules and documents relevant to the establishment of the scheme; The deeds registry is a public office and any of these documents can be viewed by any person. Note that going forward it is the function of the Chief Ombud to house and preserve the scheme documents including the rules of the scheme.

Deeds Office Searches: Person and Property Prior to dealing with sectional title property a person and property deeds search must be conducted; The property search will contain the details of the property searched whilst the person search will describe what properties are registered in the name of the person searched; The property search will indicate if there is a Section 25 Real Right of extension registered.

Deeds Office Searches: Person and Property The person search is useful when dealing with sectional title property as different schemes are registered in different ways and the details of ownership need to be established; The property owner may own more than one section; Exclusive use areas such as parking bays, garages, storerooms etc. registered by means of notarial deeds will also be shown as separate properties on the person search.

Description of a Unit The deeds registry documentation refers to a sectional tile property being owned as a Unit comprising of: (a) (b) A section; An undivided share in the common property; This is significant and important to understand from a conceptual point of view. A sectional title property owner is the owner of the actual section which will be indicated as a certain square meterage and an undivided share of the common property.

Description of a Unit The size of an owner s section will determine the owner s participation quota (PQ), expressed as a percentage of the total area; The participation quota is used to determine that owner s share of the common expenses as provided for in the monthly levy and also determines the owner s voting rights; The common property comprises the common access roads, common amenities, shared walls, roofs etc.

Exclusive Use Area (EAU) Exclusive use areas represent a portion of the common property over which a particular owner has exclusive use; The EUA is thus not owned by the section owner but rather the section owner has the right of exclusive use of that portion of the common property; There are various types of exclusive use areas: parking bays, garages, storerooms, balconies, stairwells, gardens etc.

Exclusive Use Area (EAU) In order to own an EUA, the owner must first be the owner of a unit in the scheme. Likewise, when an owner sells a section, any EUA s must be sold at the same time; EUA s are one of the most vexed and potentially problematic sectional title issues. Each scheme is different in regard to the registration and recording of EUA s.

Exclusive Use Area (EAU) Should an EUA be included as part of the property sold, the purchaser is entitled to insist on the transfer/cession of that right, in the absence of which the purchaser is entitled to a reduction in the purchase price, thus the importance of properly and accurately identifying the relevant EUA; Levy statements can also be looked at to determine if there is a levy in respect of the EUA.

Exclusive Use Area (EAU) EUA s can be registered in various ways (or a combination of these): By means of registration by virtue of a notarial deed of cession - a deeds search will reveal the existence of this form of EUA; By means of allocation by the body corporate. Should this be the case the body corporate, trustees or managing agents should have a schedule which can be consulted; By means of registration in the rules of the scheme.

Body Corporate The STMA makes provision for a body corporate, which is deemed to have been established upon the transfer of the first unit from the developer. This was previously provided for in terms of the Sectional Title Act; Every owner of a unit in the scheme is deemed to be a member of the body corporate and is thus bound by the body corporates rules. A member cannot resign from the body corporate. The body corporate has certain statutory duties in terms of the Act.

Body Corporate The body corporate is obliged to hold a yearly AGM (annual general meeting); The body corporate is obliged to nominate and elect trustees from the members to be responsible for the functioning of the body corporate; The trustees may (and usually do) appoint professional managing agents to assist in the affairs of the body corporate and the compliance with the various statutory duties.

Levies The STSMA requires a body corporate to establish two funds: an administrative fund; and a reserve fund; Previously a body corporate would only need to establish a single fund with one bank account; The reserve fund contributions must be held in a separate banking account for the purposes of executing the maintenance plan if and when required.

Levies Contributions (levies) collected from owners must be paid into the administrative fund and used only to fund operating expenses in the current financial year; These operating expenses include inter alia provisions for the repair, maintenance and administration of the common property, payment of rates and taxes and other municipality charges and the payment of insurance.

Levies A portion of the contributions must also be allocated to the reserve fund and used to pay for future expenditure determined by a maintenance, repair and replacement plan, which the body corporate is required to draw up; The Regulations to the STSMA prescribe how the reserve fund account is to be managed and further prescribes the minimum amounts that a body corporate needs to have in the reserve fund.

Levies Further in terms of the STMA, body corporate will be required to prepare a plan for the maintenance, repair and replacement of major capital items on the common property going forward 10 years; A separate budget must be proposed for this purpose and included in the calculation of the reserve fund contributions to ascertain that sufficient funds exist to give effect hereto.

Levies In order to transfer sectional title property a section 15(B)(3) certificate is lodged in the deeds registry; This certificate certifies that the levies due to the body corporate are paid in full until the end of the month of registration; The existence or otherwise of special levies should be determined and dealt with in any sale agreement.

Rates and Taxes With effect from July 2008 all sectional title units are separately rated and liable to the local authority for monthly rates and taxes; On transfer a rates clearance certificate is obtained from the local authority and presented to the registrar of deeds on transfer; The rates clearance certificate certifies that the rates are fully paid for a period of 60 days from the date of issue of the certificate. Sellers need to allow for the payment of 3-4 months rates in advance.

Insurance Sectional schemes are insured as a whole; The extent of the insurance cover is to some degree standard but differences are found in regard to for example the insurance cover of burst geysers; When a mortgage bond is passed over the unit, a sectional title insurance certificate is provided to the bank granting the finance, which certificate provides confirmation of insurance cover.

Sectional Scheme Financials The body corporate is obliged to have the scheme s financials audited each year. The audited financials are then approved at the AGM; When purchasing sectional title property, the financials should be obtained and scrutinized. Banks granting bonds often call for copies of the latest financials; In the absence of the latest audited financials, the body corporate can be requested to provide a letter to confirm all is in order and that the body corporate is solvent.

Section 25 Rights to Extend In terms of section 25 of the Sectional Titles Act, a developer may reserve the right to extend the scheme on the common property and in order to do so will upon the establishment of the scheme in the deeds registry reserve such a right in terms of section 25 of the Act; In terms of the Act, should such a right have been reserved by the developer, the seller is obliged to disclose such reservation to the purchaser in the sale agreement failing which the purchaser has the right to withdraw from the sale.

Sectional Scheme Rules The regulations to the STSMA have introduced both new Management and Conduct rules for sectional title schemes; If a developer or body corporate wishes to make any amendments to the prescribed management and conduct rules, the chief ombud must formally approve the amended rules; The chief ombud now needs to issue a certificate of approval for any new rules prior to the deeds office registering any new sectional title schemes.

STSMA New Innovations The body corporate must register a domicile with the chief ombud, local municipality and local registrar of deeds. This address is to be used for the service of any legal documentation; The body corporate may approach the ombud to obtain an order recovering arrear levy contributions from an owner; For the first time a limit has been place on the amount of proxies a person may hold at a body corporate meeting. This has now been capped at two;

STSMA New Innovations The chief ombud may be approached by a member of a body corporate if he is unable to obtain a special or unanimous resolution either by way of a stalemate or inability to achieve a quorum; The STSMA introduces service of the notice to the owners by email, fax or hand delivery as opposed to only pre-paid registered post as per the repealed legislation;

STSMA New Innovations The STSMA further provides that where a unanimous resolution is passed and it would have an adverse effect of any member, such resolution shall not be effective unless that member consents in writing within a period of 7 days from the date such resolution was passed; The trustees may on their own now receive and consent to subdivision and consolidation applications for sections;

STSMA New Innovations The STSMA also establishes a sectional title schemes management Advisory Council which Council will be tasked with making recommendations and advising the Minister on the provisions of the STSMA, as well as keeping the implementation of the STSMA and the regulations under regular review.

Community Schemes Ombud Services Act The Community Schemes Ombud Service Act No. 9 of 2011 ( CSOSA ) came into effect on 7 October 2016. From this date, all community schemes are bound by the provisions of this Act and the Regulations; A community scheme is very broadly defined includes to sectional title developments; This act provides for the establishment of the Community Schemes Ombud Service and a dispute resolution mechanism in community schemes.

Community Schemes Ombud Services Act The Community Schemes Ombud Service ( the Service ), via its Board will be responsible for, inter alia: the development of dispute resolution mechanisms; provide training for conciliators, adjudicators and other employees of the Service; regulate, monitor and control the quality of all sectional title scheme governance documentation and such other scheme governance docs as may be determined by the Minister;

Community Schemes Ombud Services Act The Community Schemes Ombud Service ( the Service ), via its Board will be responsible for, inter alia: take custody of, preserve and provide public access electronically or by other means to sectional title scheme governance documentation and such other scheme governance docs as may be determined by the Minister.

Community Schemes Ombud Services Act This Act and Regulations provides inter alia for: a levy to be payable by each unit calculate as the lesser of R40.00 of 2% of the amount by which the monthly levy charged by such scheme exceeds R500.00; detailed dispute resolution mechanism for members of community schemes;

Community Schemes Ombud Services Act that every community scheme shall take out insurance against loss or money belonging to the community scheme or for which it is responsible, sustained as a result of any act of fraud or dishonesty committed by any insurable person; that all community schemes register their details with the Ombud within 30 days of incorporation or within 30 days of the coming into effect of the regulation i.e. before 7 November 2016.

Community Schemes Ombud Services Act that all community schemes submit their governance documentation to the Service within 90 days of establishment or within 90 days of the coming into effect of the regulation i.e. before 7 January 2017; that all community schemes submit their annual financial statements to the Ombud within 4 (four) months from the end of the community scheme s financial year end.

Conclusion Whilst sellers and purchasers are in general familiar with the concept of sectional title property, the sale and purchase of a sectional title unit can still present various issues. Proper preparation and a good understanding of sectional title is necessary; With the advent of the Sectional Title Management Act and the Community Scheme Ombud Service Act, the sectional title landscape is set to change to some degree.