GOVERNANCE

Sectional titles schemes management act no. 8 of 2011 & the community schemes ombud service act no. 9 of 2011

The Sectional Title Act can be a minefield to navigate for those who are unfamiliar with it. It is compulsory for Ecliptic Estate Management estate managers to complete the relevant Sectional Title and Home Owners Association certification through Paddocks to enable them to advise and guide the relevant boards, owners and residents effectively. This article offers a brief introduction into the Sectional Title Act as is relevant to owners and the trustees.

 

The Preamble to the Act reads as follows:

 

To provide for the division of buildings into sections and common property and for the acquisition of separate ownership in sections coupled with joint ownership in common property; the control of certain incidents attaching to separate ownership in sections and joint ownership in common property; the transfer of ownership of sections and the registration of sectional mortgage bonds over, and real rights in, sections; the conferring and registration of rights in, and the disposal of, common property; the establishment of bodies corporate to control common property and for that purpose to apply rules; and the establishment of a sectional titles regulation board; and to provide for incidental matters.

 

Please click the links below to view the Sectional titles schemes management act no. 8 of 2011 & the community schemes ombud service act no. 9 of 2011:

 

CSOS notice approval of the csos and STMA regulations (PDF)

Signed CSOS regulations levies and fees (PDF)

Signed CSOS regulations (PDF)

Signed STSMA regulations (PDF)

CSOS levy calculator (.xlsx)

The Sectional Titles Act No. 95 Of 1986

The Sectional Title Act can be a minefield to navigate for those who are unfamiliar with it. It is compulsory for Ecliptic Estate Management estate managers to complete the relevant Sectional Title and Home Owners Association certification through Paddocks to enable them to advise and guide the relevant boards, owners and residents effectively. This article offers a brief introduction into the Sectional Title Act as is relevant to owners and the trustees.
Reference: http://www.paddocks.co.za/

 

Paddocks is a specialist Sectional Title and Home Owners Association training firm that provides a range of products and services throughout South Africa. Paddocks is headed by Professor Graham Paddock, who is an authority on Sectional Title law and practice.

 

The Sectional Titles Act, No. 95 of 1986 came into operation on 1 June 1988. It replaced the “first generation” Sectional Titles statute, Act No. 66 of 1971 which came into operation in 1973.

 

The original Act has been amended by the Sectional Titles Amendment Acts, Nos. 63 of 1991, 7 of 1992, 15 of 1993, 44 of 1997, 29 of 2003, 7 of 2005, 6 of 2006 and 11 of 2010 as well as by the Regional and Land Affairs Second General Amendment Act, No. 170 of 1993; Proclamation No. R.9 of 1997; Rental Housing Act, No. 50 of 1999 and the Mining Titles Registration Amendment Act, No. 24 of 2003.

 

The Preamble to the Act reads as follows:

To provide for the division of buildings into sections and common property and for the acquisition of separate ownership in sections coupled with joint ownership in common property; the control of certain incidents attaching to separate ownership in sections and joint ownership in common property; the transfer of ownership of sections and the registration of sectional mortgage bonds over, and real rights in, sections; the conferring and registration of rights in, and the disposal of, common property; the establishment of bodies corporate to control common property and for that purpose to apply rules; and the establishment of a sectional titles regulation board; and to provide for incidental matters.

 

All owners of the scheme are members of the Body Corporate whose function is as follows:

37.

(1)  A body corporate referred to in section 36 shall perform the functions entrusted to it by or under this Act or the rules, and such functions shall include –

(a) to establish for administrative expenses a fund sufficient in the opinion of the body corporate for the repair, up-keep, 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;

 

(b) to require the owners, whenever necessary, to make contributions to such fund for the purposes of satisfying any claims against the body corporate: Provided that the body corporate shall require the owner or owners of a section or sections entitled to the right to the exclusive use of a part or parts of the common property, whether or not such right is registered or conferred by rules made under the Sectional Titles Act, 1971 (Act No. 66 of 1971), to make such additional contribution to the fund as is estimated necessary to defray the costs of rates and taxes, insurance and maintenance in respect of any such part or parts, including the provision of electricity and water, unless in terms of the rules the owners concerned are responsible for such costs;

 

(bA) to require from a developer who is entitled to extend the scheme in terms of a right reserved in section 25(1), to make such reasonable additional contribution to the fund as may be necessary to defray the cost of rates and taxes, insurance and maintenance of the part or parts of the common property affected by the reservation, including a contribution for the provision of electricity and water and other expenses and costs in respect of and attributable to the relevant part or parts;
(c) to determine from time to time the amounts to be raised for the purposes aforesaid;

 

(d) to raise the amounts so determined by levying contributions on the owners in proportion to the quotas of their respective sections;

 

(e) to open and operate an account or accounts with a banking institution or a building society;

 

(f) to insure the building or buildings and keep it or them insured to the replacement value thereof against fire and such other risks as may be prescribed;

 

(g) to insure against such other risks as the owners may by special resolution determine;

 

(h) subject to the provisions of section 48 and to the rights of the holder of any sectional mortgage bond, forthwith to apply any insurance money received by it in respect of damage to the building or buildings, in rebuilding and reinstating the building or buildings in so far as this may be effected;

 

(i) to pay the premiums on any policy of insurance effected by it;

 

(j) properly to maintain the common property (including elevators) and to keep it in a state of good and serviceable repair;

 

(k) to comply with any notice or order by any competent authority requiring any repairs to or work in respect of the relevant land or building or buildings;

 

(l) to comply with any reasonable request for the names and addresses of the persons who are the trustees of the body corporate in terms of the rules referred to in section 35, or who are members of the body corporate;

 

(m) to notify the registrar and the local authority concerned of its domicilium citandi et executandi, which shall be its address for service of any process;

 

(n) to ensure compliance with any law relating to the common property or to any improvement of land comprised in the common property;

 

(o) to keep in a state of good and serviceable repair and properly maintain the plant, machinery, fixtures and fittings used in connection with the common property and sections;

 

(p) subject to the rights of the local authority concerned, to maintain and repair (including renewal where reasonably necessary) pipes, wires, cables and ducts existing on the land and capable of being used in connection with the enjoyment of more than one section or of the common property or in favour of one section over the common property;

 

(q) on the written request of any owner or registered mortgagee of a section, to produce to such owner or mortgagee, or any person authorized in writing by such owner or mortgagee, the policy or policies of insurance effected by the body corporate and the receipt or receipts for the last premium or premiums in respect thereof; and

 

(r) in general, to control, manage and administer the common property for the benefit of all owners.
(2)  Liability for contributions levied under any provision of subsection (1), save for special contributions contemplated by subsection (2A), accrues from the passing of a resolution to that effect by the trustees of the body corporate, and may be recovered by the body corporate by action in any court (including any magistrate’s court) of competent jurisdiction from the persons who were owners of units, holders of exclusive use areas and holders of real rights of extension at the time when such resolution was passed: Provided that upon the change of ownership of a unit, exclusive use areas and real rights of extension, the successor in title becomes liable for the pro rata payment of such contributions from the date of change of such ownership.

 

(2A) Any special contribution becomes due on the passing of a resolution in this regard by the trustees of the body corporate levying such contribution and may be recovered by the body corporate by action in any competent court (including any magistrate’s court) having jurisdiction, from the persons who were owners of units at the time when such resolution was passed.

 

(2B) ‘Special contribution’, for the purposes of this section, means any contribution levied under subsection (1) other than contributions which arise from the approval of the estimate of income and expenditure at an annual general meeting of a body corporate, determined to be a contribution to be levied upon the owners during the ensuing financial year.

 

(3)  The body corporate shall, on the application of an owner or mortgagee of a unit, or any person authorized by such owner or mortgagee, certify in writing –
(a) the amount determined as the contribution of that owner;

(b) the manner in which such contribution is payable;

(c) the extent to which such contribution has been paid by the owner; and

(d) the amount of any rates and taxes paid by the body corporate in terms of section 51 and not recovered by it.

 

(4)  The body corporate shall, for the purposes of effecting any insurance under subsection (1)(f), be deemed to have an insurable interest for the replacement value of the building and shall, for the purposes of effecting any other insurance under that subsection, be deemed to have an insurable interest in the subject-matter of such insurance.

 

The Body Corporate elects a Board of Trustees to manage the affairs of the scheme:

39.

(1)  The functions and powers of the body corporate shall, subject to the provisions of this Act, the rules and any restriction imposed or direction given at a general meeting of the owners of sections, be performed and exercised by the trustees of the body corporate holding office in terms of the rules.

 

(2)  For the purposes of an agreement in respect of the beacons and boundaries of the common property required in terms of the Land Survey Act, 1997 (Act No. 8 of 1997), the trustees shall be deemed to be the owner of the land.

 

Fiduciary position of Trustees:

40.

 

(1)  Each trustee of a body corporate shall stand in a fiduciary relationship to the body corporate.

(2)  Without prejudice to the generality of the expression “fiduciary relationship”, the provisions of subsection (1) shall imply that a trustee –
(a) shall in relation to the body corporate act honestly and in good faith, and in particular –

(i) shall exercise such powers as he may have to manage or represent the body corporate in the interest and for the benefit of the body corporate; and

(ii) shall not act without or exceed the powers aforesaid; and

(b) shall avoid any material conflict between his own interests and those of the body corporate, and in particular –

(i) shall not derive any personal economic benefit to which he is not entitled by reason of his office as trustee of the body corporate, from the body corporate or from any other person in circumstances in which that benefit is obtained in conflict with the interests of the body corporate;

(ii) shall notify every other trustee, at the earliest opportunity practicable in the circumstances, of the nature and extent of any direct or indirect material interest which he may have in any contract of the body corporate.

 

(3)

(a)  A trustee of a body corporate whose mala fide or grossly negligent act or omission has breached any duty arising from his fiduciary relationship, shall be liable to the body corporate for –

(i) any loss suffered as a result thereof by the body corporate; or
(ii) any economic benefit derived by the trustee by reason thereof.
(b)  Where a trustee fails to comply with the provisions of subsection (2) (b) (ii) and it becomes known to the body corporate that the trustee has an interest referred to in that subsection in any contract of the body corporate, the contract in question shall, at the option of the body corporate, be voidable: Provided that where the body corporate chooses not to be bound, a Court may on application by any interested person, if the Court is of the opinion that in the circumstances it is fair to order that such contract shall nevertheless be binding on the parties, give an order to that effect, and may make any further order in respect thereof which it may deem fit.

 

(4)  Except as regards his duty referred to in subsection (2) (a) (i), any particular conduct of a trustee shall not constitute a breach of a duty arising from his fiduciary relationship to the body corporate, if such conduct was preceded or followed by the written approval of all the members of the body corporate where such members were or are cognizant of all the material facts.

 

Sectional Title developments have both Prescribed Management Rules and Conduct Rules which are binding on all owners:

69.

The provisions of these rules and of the conduct rules, and the duties of the owner in relation to the use and occupation of sections and common property shall be binding on the owner of any section and any lessee or other occupant of any section, and it shall be the duty of the owner to ensure compliance with the rules by his lessee or occupant, including employees, guests and any member of his family, his lessee or his occupant.

 

Amendments

STA 1986 Amendment of Regulations 14 March 2013 (PDF)

Government Gazette 30 June 2015 (PDF)

Trustee Policies: What Is the Position Regarding Trustee Rule-Making?

We quite often hear of trustees in schemes making rules, usually unpopular rules. So what is the position regarding trustee rule-making? A sectional title scheme must be run in accordance with the provisions of the Sectional Titles Act, 95 of 1986 (the Act) and the rules currently in force at that scheme. Those rules, for all schemes, are management rules and conduct rules and there is a set prescribed in the regulations to the Act.

 

When the developer applies for the opening of the register for the scheme it can either specify that the prescribed rules apply or can change certain of the management and all the conduct rules. Once the scheme is up and running, only the body corporate can change those rules or make new ones, and this has to be done by unanimous resolution for management rules and by special resolution for conduct rules.

 

All of this means that although many do, or try to, the trustees are not entitled to make scheme rules. They are however entitled to make procedural policy that they themselves, and in some cases, the owners and tenants must follow. Like the rules, the policies can be very roughly divided into management processes that the trustees and managing agent would follow, and conduct policies that residents must follow. Examples could be the processes to be followed in the collection of arrear levies, and steps that residents must take to apply for a new gate remote control device should they lose one. Or, closer to a conduct rule, steps residents must follow in regard to the moving of refuse containers to and from a central refuse collection area.

 

Whatever the nature of the policy, it must be made by a properly minuted trustee resolution, published to owners and occupiers and it should be reviewed at least every year, perhaps at or after the AGM, when any directives or restrictions on the trustees’ activities can be accommodated as well as any changes to the policies the new board might feel appropriate.

 

One of the functions of the body corporate is to enforce the scheme’s rules and the trustees have various options as to how that can be achieved. But how do they enforce “trustee policies” if owners do not co-operate? Section 44(1)(d) and (e) are general enough to apply to the kind of things on which trustees could make policies.

 

Both the board of trustees and the owners need to keep in mind two basic principles that can be applied to trustee policies. The first is that the body corporate is entitled to do anything reasonable to enforce the rules and manage the common property. This means that trustee policies must be reasonable and made to achieve an appropriate end. Secondly, owners can give directions to trustees and restrict their activities so, if enough owners don’t like a trustee policy, they can get it changed at a general meeting.

 

There are many situations that need some sort of standard procedure to be followed and it isn’t sensible to make a scheme rule to provide for it. These are the kind of things that can be covered by a much more flexible “trustee policy”.

 

By Anton Kelly: course instructor for Paddocks UCT Sectional Title Scheme Management Specialist Estate Agent short course. Article reference: Paddocks Press: Volume 9, Issue 6, Page 1

Acts Relating To Operational Estate Compliance

It is the responsibility of the Body Corporate or the Home Owners Association to ensure that all service providers and contractors working in the estate are doing so on the right side of the law; this is as important as if the Board’s employed their own staff instead of outsourcing these portfolios.

 

These Acts have bearing on residential estate living:

 

 

Various national, provincial and local bylaws have bearing on residential estate living in addition to the Acts listed above, and Ecliptic Estate Management is well versed in these. The Operations Compliance Division specialises in assisting estates with compliance-audits and implementation of the requirements.

Home Owners Associations

Unlike Sectional Title schemes, where body’s corporate are established automatically in terms of the applicable legislations, free hold estates have to create a “body corporate” to enforce the rules, control, administer and manage the estate for the benefit of the owners of the properties in the estate. A Home Owners Association is a property owners’ association which represents a body of multiple owners in full title or freehold housing schemes as opposed to Sectional Title schemes.

 

When a developer applies to the local authority to open a township which is intended to be used as an estate, the local authority will make it a condition of establishment of the township that before any property is transferred to the new owners, that the developer must establish a Home Owners Association, and ensure that the common property is transferred to the Home Owners Association.

 

A Home Owners Association can be established by a constitution in terms of common law, but it is more common to establish it as a Section 21 Company, which is a non-profit company. The company will have a board of directors, which perform the same function as trustees of a body corporate, and all owners of properties in the estate will be a member of the company. Through a condition in their title deed, all owners will be subject to the rules and regulations established by the company. At the stage that the company is established, its memorandum and articles of association will allow for the creation of rules and regulations for the management and control of the estate.

 

Home Owners Associations have been given two years to move from their existing memorandum and articles of association to a new memorandum of incorporation (MOI). The ideal MOI is based on the Sectional Title model which contains management rules which can only be changed by a unanimous resolution of a body corporate, and conduct rules which can be changed far more easily. To change the MOI will require a special resolution of owners, whilst the annexures can be changed by the directors. Home Owners Associations have until 1 April 2013 to register their MOI.

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