What Role Do Homeowners’ Associations Play in Shared Developments?
Homeowners’ Associations (HOAs) are a critical component of shared developments in South Africa, managing everything from noise levels to pet policies. While they offer many benefits, the legal framework surrounding HOAs can be complex, involving legislation such as the Sectional Titles Schemes Management Act of 2011. In addition to managing disputes and enforcing rules, HOAs also play a key role in maintaining the aesthetic quality and value of properties within a shared development. For instance, they may have rules regarding landscaping, painting, or window coverings, all of which contribute to a well-kept and visually pleasing neighbourhood. Moreover, HOAs can provide a range of communal services, such as security patrols, cleaning services, and even recreational facilities. These services not only enhance residents’ quality of life but also contribute to the overall desirability and value of the development. By preserving property values, HOAs can also create a sense of pride and community among residents. However, HOAS need to strike a balance between enforcing rules and respecting residents’ rights. Overly strict or intrusive rules can create tension and frustration among residents, potentially leading to disputes and legal challenges. To avoid such conflicts, HOAs should be transparent and fair in their decision-making processes. Residents should be encouraged to participate in HOA meetings and to voice their concerns or suggestions, creating a collaborative and mutually beneficial environment. In summary, HOAs serve as guardians of communal living in South Africa, playing a vital role in maintaining property values, preserving the aesthetic quality of developments, and fostering a sense of community among residents. However, their authority must be wielded with care, balancing the need for rules and regulations with the rights and interests of residents. To ensure a positive living experience within a shared development, residents and HOAs should work together, communicating openly and utilising available dispute resolution mechanisms when conflicts arise. With respect, understanding, and cooperation, shared living in South Africa can be both harmonious and rewarding. Negotiating Disputes Within HOAs Disputes within HOAs are common but can often be resolved through proper communication and the use of dispute-resolution mechanisms. Under the Prescribed Management Rules, HOAs must establish a Dispute Resolution Committee (DRC) to handle disagreements between residents and the HOA, as well as between residents themselves. If conflicts escalate, residents can also appeal to the Community Schemes Ombud Service (CSOS), a statutory body that provides dispute resolution services for sectional title schemes. Ensuring Harmony Within Shared Developments Harmony is essential for successful shared developments, and HOAs play a vital role in maintaining this balance. By understanding the legal framework and using the available dispute resolution mechanisms, residents and HOAs can work together to resolve conflicts and protect individual rights. For property owners in South Africa, it is important to familiarise themselves with the legal framework and dispute resolution processes before entering into shared ownership arrangements. This can prevent unnecessary conflicts and ensure a positive living experience. Homeowners’ Associations are a crucial element of shared developments in South Africa, balancing individual rights with community harmony. By understanding the legal framework and utilising dispute resolution mechanisms, residents and HOAs can prevent conflicts and foster a positive living environment. If you are a property owner considering shared ownership, take the time to research the legal framework, the Prescribed Management Rules, and available dispute resolution options. Doing so can help ensure that your experience is both rewarding and legally sound. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.
Mediation v Arbitration: What Is the Difference? PART 1
A common trend in commercial contracts is the inclusion of a mediation and/or arbitration clause. As a general point of departure, these clauses require the parties to the contract to refer any dispute arising from the contract to mediation as a first step. Should the mediation process be unsuccessful, these clauses then require that the parties have the dispute arbitrated. These clauses are in a certain sense a double-edged sword. On the one hand, they promote contractual parties amicably resolving disputes. The positives of this are the avoidance of litigation and legal costs. On the other hand, if mediation proves to be unsuccessful arbitration can be a costly exercise and leaves dissatisfied parties with few avenues to reserve or challenge the decision. This article will explore what the differences are between mediation and arbitration generally. Mediation Over time, there has been a shift towards consensus-based dispute resolution processes and as a result, the use of mediation is more prevalent. This is especially true for commercial matters. By using mediation as a way to resolve disputes the parties thereto are able to be fully involved in and have more control over the process itself and the outcome. Currently, in South Africa, there is no legislation governing mediation as a method to resolve disputes. As such, there is also no definition of ‘mediation’ readily available in our law. Despite this, there are working definitions of mediation that have been suggested by authors and which are widely accepted. For example, the National Alternative Dispute Resolution Advisory Council in Australia defines mediation as follows: “Mediation is a process in which the parties to a dispute, with the assistance of a dispute resolution practitioner (the mediator), identify the disputed issues, develop opinions, consider alternatives, and endeavour to reach an agreement. The mediator has no advisory or determinative role in regard to the content of the disputes or the outcome of its resolution but may advise on or determine the process of mediation whereby resolution is attempted. Mediation may be undertaken voluntarily, under a court order, or subject to an existing contractual agreement.” From this working definition, some of the main features of mediation as a dispute resolution process can be identified. These include: 1. The process is a voluntary, non-binding, non-prescriptive dispute resolution process. Parties involved in mediation do so completely voluntarily. This method of resolving disputes is ineffective if one or more of the parties involved are not actively involved in seeking an agreement. This means that should one or more party decide to not be involved in the process, mediation will fail. 2. The mediator is an independent individual who facilitates the process. The mediator is generally a specialist in the procedures of mediation. Their role is not to be specialists in the content of the dispute at hand. Their expertise in how the mediation process works allows them to actively assist the parties to a dispute to reach an agreement themselves. A mediator can also be described as a facilitator since their main task is to help the parties through the process so that the parties themselves resolve the dispute. Essentially, the mediator assists the parties in their negotiations. 3. The process is confidential. This is often seen as one of the greatest advantages of mediating a dispute. Mediation is completely confidential. Confidentiality in this context is two-fold. Firstly, the mediator is bound to keep the fact that mediation is taking place confidential. This means that the fact that parties are resolving a dispute with mediation cannot be shared. Secondly, the mediator is bound to keep the happenings of the mediation confidential. What was discussed between parties, offers that were made, and all other communications regarding the dispute must remain confidential. These key features were also discussed by the High Court in the case of Kalagadi Manganese (Pty) Ltd and Others v Industrial Development Corporation of South Africa Ltd and Others. From the above, it is clear why mediation has become a popular way to resolve disputes. A discussion relating to Arbitration will follow in Part II. Reference list: T Hedeen, Coercion & Self-Determination in Court-connected Mediation: All mediations are voluntary, but some are more voluntary than others (1997). Kgalagadi Manganese v Industrial Development Corporate of South Africa (2021). J brand, F Steadman & C Todd Commercial Mediation: A User’s Guide (2016). While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.
VAT on Short-Term Lettings and Commissions
Are you acting as agent or principal—and what would be the pragmatic approach? There are very few people across the world who haven’t heard of Airbnb. Started in San Francisco in 2008, this multi-billion-dollar NASDAQ-listed company that employs around 7,000 people has revolutionised the short-term letting industry. Over four million property owners around the world use the platform to let their properties. And yet, their business model is actually quite simple. A property owner makes their property available for letting. Airbnb makes their platform available to list the property and collects the fee for the accommodation on the owner’s behalf. For this service, Airbnb charges a commission. However, while the emergence of Airbnb has provided intense competition for the existing players in the industry, this doesn’t mean that the local agency model is dead. In fact, many people still prefer the personal touch when it comes to entrusting their property for letting. With this in mind, I was approached for a one-off opinion for a client that was a registered VAT vendor engaged in the business of letting out accommodation on behalf of various owners. Given that the client did not own the properties concerned and was merely acting as agent, they wanted to know how to correctly account for VAT on the various transactions going through their books. These transactions were effectively as follows: The agency would charge their client (the property owner) an amount based on the going rate per night for accommodation. They would also charge the owner a commission for letting out such accommodation. Since they had collected the charge for the accommodation on the owner’s behalf, they would deduct their commission from these funds and pay the balance (net of commission) to the owner. If the agency was not registered as a VAT vendor, a simple example would be as follows: Cost of accommodation: R5 000.00 Less: Commission: (R1 250.00) Amount payable to owner: R3 750.00 However, the fact that the agency was registered as a vendor for VAT purposes means that VAT must be charged on all taxable supplies. This leads to the question of what constitutes a ‘supply’ in this particular case. By way of background, the agency’s clients were mainly corporate entities who sourced accommodation from a variety of sources (including hotels), and the agency would be required to add VAT to all of their supplies. However, neither the Value-Added Tax Act 1991 nor the various SARS VAT Interpretation Notes provide a clear directive. One could therefore argue that the letting of the accommodation is not a taxable supply made by the agency, since they are merely acting as an agent on behalf of the property owner. Based on this strict interpretation, a conclusion could be drawn that the accommodation portion should not in fact include VAT. However, it is a common practice in this particular industry that accommodation charges are deemed to include VAT, and a corporate customer would want to be in a position to claim this VAT charged as an input. If the accommodation had in fact been owned by the agency, the matter would be cut and dried—they would be required to charge VAT. It is the fact that the property concerned was not owned by the agency that has given rise to the ambiguity. In the absence of clarity in terms of legislation and SARS publications, I have therefore based my opinion on prevailing practice as applied by agents who manage commercial premises. In such cases, although the managing agent concerned is not the owner of the premises in question, their invoices normally include VAT. As for the commission that the agency charges, it is clearly a supply since it relates to the rendering of a service by the agency. VAT at the standard rate must therefore be charged on the commission. An example of the accounting entries would therefore be as follows (assuming a commission rate of 25%): 1. Dr. Accommodation client (debtor) R1 000.00 Cr. Owner (creditor) R869.57 Cr. VAT control (output VAT) R130.43 Raising the accommodation charge against the agency’s client on the owner’s behalf 2. Dr. Bank R1 000.00 Cr. Accommodation client (debtor) R1 000.00 The accommodation client settles their account 3. Dr. Owner (creditor) R250.00 Cr. Commission income R217.39 Cr. VAT control (output VAT) R32.61 Raising the commission charge against the owner (R869.57 x 25%, plus VAT at 15%) 4. Dr. Owner (creditor) R619.57 Cr. Bank R619.57 Payment of the amount due to the owner (R869.57 less R250.00) The agency would issue a tax invoice to the client for the accommodation, and a separate tax invoice to the owner for the commission amount. In this case, the owner is receiving R1 000.00, less the R130.43 VAT portion, less the R250.00 (R217.39 + VAT) charged as commission. If the owner wanted to come out with a net R750.00, then the accommodation in this example would have to be priced at R1 000.00 plus VAT. WRITTEN BY STEVEN JONES Steven Jones is a registered SARS tax practitioner. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.
All Our Trustees Have Resigned. What Now?
What happens if all the trustees of a sectional title scheme resign? Who is then in control of the management, and who is entitled to continue exercising the function and powers of the body corporate, which is entrusted to the trustees by virtue of the Sectional Title Schemes Management Act 8 of 2011 (STSMA)? The answer lies in the question, namely the body corporate. Prof CG Van der Merwe describes the body corporate as consisting of the aggregate of sectional owners, and is the central administrative body provided by the legislature for the management of the scheme. Upon the date upon which any other person other than the developer becomes an owner, there is deemed to be established for that scheme, a body corporate. The body corporate is subject to the provisions of the STSMA, responsible for the enforcement of the rules and for the control administration and management of the common property for the benefit of all the owners. A body corporate continues to exist until such time as its affairs are wound up and it is dissolved pursuant to an order to that effect by the High Court. No sectional owner can revoke his membership in the body corporate, and they remain a member until they cease to be an owner of a unit in the scheme. It is therefore obvious that the resignation of the trustees will not bring an end to the body corporate. There are a few options available to the owners of units to ensure the continued functioning of the body corporate, now that the trustees have resigned from office, namely: Call a special general meeting in order to appoint replacement trustees. In order to convene a meeting, the owners entitled to at least 25% of the total of the quota of all sections, can convene the meeting by giving 14 days’ notice to all the owners. The notice must include the motion for discussion, which must be included in the agenda for the meeting. Should all the members waive their right to the meeting and consent to the resolution, then the rules provide that the meeting does not have to be held and that the resolution will be so passed. If not, the meeting must be held and the resolution must be voted upon. The appointments will not require a special or unanimous resolution, a simple majority will suffice. The replacement trustees will serve until the next annual general meeting. The replacement trustees then continue as the trustees and must perform the duties and functions entrusted to them; or The body corporate can, by way of a special resolution, appoint an executive managing agent to perform the functions and exercise the powers that would otherwise have been performed and exercised by the trustees. Alternatively, the owners entitled to 25% of the total quota of all the sections can apply to the Community Schemes Ombud Service for the appointment of an executive managing agent. The Act provides that: the executive managing agent is subject to all the duties and obligations of a trustee under the Act and the rules of the scheme; is obliged to manage the scheme with the required professional level of skill and care; is liable for any loss suffered by the body corporate as a result of not applying such skill and care; has a fiduciary obligation to every member of the body corporate; must arrange for an inspection of the common property at least every six months and must report at least every four months to every member of the body corporate on the administration of the scheme. The Act furthermore provides the extent of the details to be included in the reports as referred to above. The list is extensive and includes amongst other things: proposed repairs and maintenance of the common property and assets of the body corporate; any matter relevant to the condition of the common property; the balance of the administrative and reserve funds of the body corporate and a reconciliation statement of the funds; for the period of appointment the expenses of the body corporate, including repair maintenance and replacement costs and a brief description of the date and nature of all decisions made by the executive managing agent. The only issue detracting from the appointment of an executive managing agent will be the cost involved. The executive managing agent will charge a fee which will usually be higher than that of managing agents due to the extent of the work as a result of any ineffectiveness or maladministration of the existing trustees; or Finally and possibly the most intrusive and costly, in that it involves a court application, is the appointment of an administrator. If there is evidence of serious financial or administrative mismanagement of the body corporate and if there is a reasonable possibility that if placed under administration it will be able to meet its obligations and be managed in accordance with the Act, the Magistrates Court will appoint an administrator for a fixed period. An application can be made by the body corporate, a local municipality, a judgment creditor, any owner or a person having a registered real right in or over a unit for the appointment of a suitably qualified and independent person to serve as an administrator. The administrator has, to the exclusion of the body corporate, such powers and duties as the Magistrates Court direct and must exercise these powers to address the body corporate’s management problems as soon as is reasonably possible. They must convene and preside at meetings and lodge with the Ombud copies of notices and minutes of meetings and written reports on the administration process every three months or at such intervals as the court may determine. The court can on application by the administrator or those parties referred to hereinbefore, remove, replace, extend the term or amend the terms of appointment of the administrator and make any order for payment of costs. Prof CG van der Merwe states that