NEWSLETTER
- AUGUST 2006
Sectional Title Scheme Alert
Due to the unique nature and demands on the property
industry in South Africa, ownership in Sectional
Titles Schemes is becoming increasingly popular.
Many property investors and owners are however
not aware of what a Sectional Title Scheme is
and what it entails to become an owner in such
a scheme. The purpose of this newsletter is to
give you a very general and basic insight into
this type of ownership.
What is a Sectional Title Scheme?
The Sectional Titles Act 95 of 1986 ("the Act")
makes provision for and regulates ownership in
Sectional Title Schemes.
By buying into a Sectional Title Scheme, you buy
a unit in the scheme which consists of a section
and an undivided share in the common property
of the scheme. A section is either a specific
portion of a building or a building in itself,
of which you become the sole owner. The common
property is that part of the scheme that does
not form part of any section, such as driveways,
gardens and swimming pools. All owners of units
in the scheme become joint owners of the common
property. Specific areas forming part of the common
property can be set aside for the exclusive use
of the owner of a specific unit. The person buying
the unit then also becomes entitled to the right
of exclusive use of that specific area.
A sectional title scheme is controlled and managed
by the Body Corporate by means of rules. The rules
comprise both management rules and conduct rules.
The management rules cover issues such
as:
1. The domicilium of the Body Corporate (it's
legal address);
2. The Trustees of the Body Corporate (all matters
to do with trustees, their meetings and their
duties and obligations);
3. The meetings of owners.
The conduct rules cover issues such as:
1. Pets - The rules regarding the keeping of pets;
2. Refuse disposal;
3. Vehicles (Parking, speeding, washing and oil
leaks);
4. Damage, alterations and additions to the common
property;
5. Owners may not put anything on any part of
the common property which in the discretion of
the trustees is aesthetically displeasing or undesirable,
when viewed from the outside of the section;
6. Letting of units.
How is a Sectional Title Scheme managed?
A Sectional Title Scheme is controlled and managed
by a Body Corporate. The members of the Body Corporate
are all the owners in the scheme.
The Body Corporate is responsible for the control,
administration and management of the common property
for the benefit of all the owners. The Body Corporate
appoints trustees who exercise the functions of
the Body Corporate according to the Act. The trustees
may appoint a managing agent, who has the necessary
skills, expertise and experience to assist the
Body Corporate with these duties.
The duties of the trustees include the management
and control of the common property, the collection
of levies, ensuring that the buildings are adequately
insured, enforcing the rules of the scheme and
the controlling of finances.
It is very important to remember that the operation
of a Sectional Title Scheme is comparable to the
running of a business and therefore accurate accounting
and financial control of the Body Corporate is
paramount. A huge responsibility rests on the
shoulders of the trustees to ensure that the scheme
is adequately managed and remains financially
secure. Each owner should also realize that the
value of his ownership in the scheme is to a great
extent determined by how well the scheme is managed,
administered and controlled. Each owner should
therefore be involved in this process as much
as possible.
Why do I pay Levies and how is it calculated?
The Body Corporate must establish a fund which
it believes will be sufficient for the administration
of the scheme. Owners in a Sectional Title Scheme
contribute to this fund by paying monthly levies.
Before every annual general meeting of the scheme,
the trustees prepare a budget for the following
year, determining the funds that will be necessary
for the following year which they believe will
be sufficient for the repair, upkeep, control,
management and administration of the common property,
for rates and taxes and the supply of electricity,
water and other services to the scheme. Provision
is also made for future maintenance and repairs.
Once the budget is accepted by the members, the
total annual cost is divided into a monthly amount
according to each owner's participation quota
and each owner is levied accordingly.
The Body Corporate should also make provision
for debts and arrear accounts from previous financial
years as it will remain liable for the payment
thereof. Many Body Corporates often make the mistake
of only considering the upcoming financial year
when they do their financial planning. This can
have major financial and legal implications for
owners in Sectional Title Schemes as they can
be held personally liable for outstanding debts
not paid by the Body Corporate.
It is important to realize that the main determining
factor in calculating the required levies payable
is the actual expenses that will be required for
the administration of the scheme. It is therefore
not something that should be calculated according
to considerations such as what owners can afford
or what the inflation rate is.
The Act also provides for circumstances wherein
special levies can be raised by the Body Corporate
for unforeseen expenses.
What should prospective purchasers look
out for?
Every prospective purchaser in a Sectional Title
Scheme must do their homework thoroughly before
making an offer to purchase a unit in the scheme.
It is advisable to do the following:
. Obtain a copy of the rules governing the Sectional
Title Scheme. Make sure that you will be able
to comply with these rules. If you have pets,
avoid unnecessary disputes and disappointments
later by familiarizing yourself with the rules
of the Body Corporate regarding the keeping of
pets in your section;
. Get confirmation from the trustees or the managing
agent of the levies that will be payable on the
section and enquire whether any levy increases
and payment of special levies are contemplated;
. Ensure that the Body Corporate has maintained
accurate accounting and financial management of
the scheme;
. If you are planning on doing any renovations
or improvements to the section, you should acquaint
yourself with the rules and requirements relevant
thereto;
. Obtain copies of the minutes of trustee meetings
to determine if there are any problems in the
scheme or new projects planned which could effect
your investment in the scheme;
. Get information on outstanding debts and accounts
to avoid a situation where you can be held liable
in your personal capacity for Body Corporate debts;
. Enquire whether the developer of the scheme
has, in terms of the Act, registered a right to
extend the scheme at a later stage, by building
additional sectional title units in the scheme.
There are many advantages in buying a Unit in
a Sectional Title Scheme. Prospective purchasers
should consider factors such as improved security
and sometimes a more affordable housing option
which increases quality of living against the
risks involved in deciding whether this form of
ownership suits their specific requirements.
WRITTEN BY:
UNA DU TOIT
CONVEYANCER
PETZER, DU TOIT & RAMULIFHO
