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
Are You Obligated to Pay Arrear Levies When Purchasing a Sectional Title Unit? Part 2
Recently, the High Court and the Supreme Court of Appeal (SCA) were required to interpret Section 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 in relation to a sale in execution in the case of the Body Corporate of Marsh Rose v Arno Steinmuller and others. The issue in the appeal is firstly, the statuses of the parties, consequently, whether the body corporate’s reliance on the statutory embargo is susceptible to challenge and secondly, the High Court’s order, which irrespective of the interpretation given to the embargo provision, cannot stand. In 2018, Mr Steinmuller acquired a unit in a sectional title scheme at a sale in execution. The transfer was authorised by a court order that Standard Bank obtained against the registered owner of the unit. It’s important to note that, as per the Act, a body corporate is not considered an owner of property; it merely manages the common property on behalf of the individual owners. Simply put, the body corporate is not a party to the sale agreement. The said sale was contingent upon the published conditions of sale, which described that the Purchaser was liable for certain payments including: “All levies due to a Body Corporate in terms of the Sectional Titles Act, 1986…” If a property is sold in execution, a contract is established between the sheriff, who executes the court order, and the purchaser, whose bid is approved. The execution creditor (Standard Bank) is thus also not a party to the agreement. The purchaser bears the responsibility to pay the purchase price and any additional amounts due to abide by the terms of the agreement. This is a contractual obligation. The sheriff may enforce the terms of the sale agreement or seek cancellation of the transaction in accordance with rule 46(11) if a buyer fails to meet a condition of the sale. In this case, the terms of the sale stipulated that the sheriff would be entitled to recover levies that were due to the body corporate as part of the purchaser’s payment. This was the context in which the appeal needed to be resolved. Mr. Steinmuller would only have an enforceable right if he had fulfilled his contractual duties under the terms of the agreement of sale. His right operates against the sheriff and not the body corporate. If Mr. Steinmuller’s contractual obligations are limited by the terms of sale, he might be able to demand that the sheriff grant transfer upon payment of that money. He cannot, however, insist that the body corporate accept his offered payment and, as a result, offer a clearance certificate that would allow the transfer to take place. The body corporate’s statutory power to refuse to issue a clearance certificate until all outstanding payments have been made cannot be limited by Mr Steinmuller’s contractual right to transfer. A conveyancer’s certificate attesting to the fact that all money owed to the body corporate has been paid is required before the sheriff can grant transfer. Until the terms of the embargo are fulfilled, the body corporate would legally be able to refuse to deliver the certificate. The result is that Mr. Steinmuller is not a party to any disagreement that may exist conceptually about what is owed to the body corporate, he has no legal interest. As a result, the SCA ordered that the High Court’s ruling be set aside and replaced with an order dismissing the application with costs, including the costs of two legal counsels where so employed. The court concluded that, with regards to the decision in Barnard NO v Regspersoon van Aminie en ’n ander, legal fees paid to recover money owed to the body corporate was protected by s15B(3)(a) of the Act. 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.
Complex Living: Be Aware of the Hidden Costs
When considering the purchase of a unit within a complex, it’s crucial to look beyond the surface-level expenses such as the advertised levies. Without thorough research, potential buyers may find themselves facing unexpected financial burdens. The structure of sectional title schemes In sectional title schemes, you own your unit but share ownership of the property’s common areas with other unit owners. This collective ownership, known as the body corporate, is responsible for the maintenance of exteriors, gardens, security, and the overall upkeep of the complex. These responsibilities are funded through monthly levies, which can be more complex than they first appear. Monthly administrative levy The administrative levy is the primary fee in sectional title schemes, varying based on your unit’s size, which means that larger units contribute more. This levy covers not just the utilities—such as electricity and water, billed collectively to the scheme and then apportioned to units based on usage—but also the maintenance of common areas, operational expenses, and building insurance. Reserve funds and special levies Since 2016, a law has mandated that a portion of levies be allocated to reserve funds for long-term maintenance, guided by a 10-year capital expenditure plan. This fund, typically no less than 15% of the administrative levy, is designed to prevent the sudden imposition of special levies for major maintenance projects. Despite the reserve fund’s intent to cover large expenses, unforeseen costs like significant repairs or utility billing errors can necessitate special levies. These are decided by the trustees and can represent a significant additional cost. CSOS levy The Community Scheme Ombud Service (CSOS) levy, another cost in sectional title schemes, is the lower of R40 or 2% of an owner’s levy when it exceeds R500, with no levy charged for amounts under R500. This is collected quarterly by managing agents. The risk of non-paying owners Non-paying owners in sectional title schemes pose a significant risk, which can strain the scheme’s finances. Trustees can address late levies by seeking an adjudication order from the Community Schemes Ombud Service (CSOS) or taking legal action through an attorney to enforce payments. However, these steps can take time, and in the interim, compliant owners may face unexpected special levies as the scheme manages these financial shortfalls, directly impacting your budget and financial planning. Make an informed decision Before committing to a purchase, prospective buyers should request the latest levy statement to fully understand monthly charges, particularly since utilities are included in sectional titles. The actual cost, including utilities, can far exceed initial quotes. It’s also vital to review the most recent AGM pack, current budget, and financial statements to understand the financial health of the scheme and avoid investing in a poorly managed, financially unstable scheme. 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.
Understanding homeowners associations (HOAs)
If you are considering buying a property in a housing development, it’s essential to understand what a Homeowners Association (HOA) is and how it operates. HOAs are legal entities responsible for managing and regulating housing development schemes. Although homeowners own their individual properties, the HOA maintains and oversees communal infrastructure, such as roads, security systems, and other shared amenities. When purchasing a property in a housing development, the title deed will typically include a condition that mandates automatic membership in the HOA for the new owner. Additionally, the transfer of ownership cannot occur without the HOA’s approval. During the registration process, you will receive access to the HOA’s Constitution and Conduct Rules. Here is an example of the language you might find in the title deed: “SUBJECT to the following condition contained in Deed of Transfer Number Txxxx/20xxx, imposed by Stormers Country Estate (Pty) Ltd, Registration Number XXXX/XXXXX/XX, as developers, and as stipulated in the Stormers Country Estate Homeowners Association Constitution, established under Section 29 of the Land Use Planning Ordinance No 15 of 1985, and approved by the City of Cape Town under Section 42 of the same ordinance, regarding the subdivision of Erf XXXX Cape Town: ‘That the within property may not be sold or transferred without the prior written consent of the Stormers Country Estate Homeowners Association, of which the Transferee shall become a member. Such consent shall not be unreasonably withheld.’” HOAs can be established through two legal structures: as a non-profit company or a common law association. Non-Profit Company: An HOA set up as a non-profit company operates under a Memorandum of Incorporation and is governed by the Company Act. Common Law Association: An HOA established under common law operates according to its Constitution, guided by Common Law. In both structures, the HOA’s governing documents serve as binding contracts for homeowners/members within the development. These financial and governance documents must be submitted annually to the Community Schemes Ombud Services (CSOS) for record-keeping and oversight. The Constitution and Core Duties of HOAs The Constitution of a common law association outlines the operational obligations and governance structure of the HOA. It allows members or executive members to create regulations and rules that bind all members. The Constitution details the scope of the HOA’s activities and the powers of its executives, which are typically defined during general meetings. Core Duties: Maintenance and Repairs: One of the HOA’s primary responsibilities is the upkeep and repair of communal spaces and shared amenities. This includes tasks such as landscaping, pool maintenance, parking lot upkeep, and the management of recreational facilities. By collecting membership fees, the HOA ensures these areas are well-maintained, enhancing the living experience for all residents. Enforcement of Rules and Regulations: HOAs establish and enforce community guidelines, which may cover architectural standards, noise restrictions, pet policies, and parking regulations. These rules are essential for maintaining the community’s appearance and ensuring a high quality of life for all members. Financial Management: The HOA board oversees budgeting and financial management, ensuring funds are allocated transparently and effectively. While HOAs do not have inherent powers to impose penalties on members, their governance documents may grant them the authority to pursue legal action for collecting overdue levies, fines, or other fees owed by members. A well-managed HOA, with effective oversight by elected executives, can foster a strong sense of community and potentially enhance the market value of individual properties. Before purchasing a property within a housing development scheme, reviewing the applicable governance documents and familiarising yourself with the rules and regulations you will be expected to follow is crucial. Reference: Home Owners’ Survival Manual by Graham Paddocks 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. Powered by SucceedGroup
Are you obligated to pay arrear levies when purchasing a sectional title unit? Part 1
Recently, the High Court and the Supreme Court of Appeal (SCA) was required to interpret Section 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 in relation to a sale in execution in the case of the Body Corporate of Marsh Rose v Arno Steinmuller and others. The Sectional Titles Act 95 of 1986 stipulates in Section 15B(3)(a)(i)(aa) that the registrar of deeds shall not register a transfer of a unit or an undivided share therein unless he is presented with a conveyancer’s certificate attesting to the fact that, as of the date of registration, the body corporate has certified that all monies owed to the body corporate by the transferor in respect of the said unit have been paid, or that payment has been made to the satisfaction of the body corporate. In this matter, Mr Steinmuller bought a property in a sectional title scheme sold by the sheriff in a sale in execution. The previous owner of the property owed money to the body corporate of Marsh Rose in respect of arrear levies. The body corporate obtained a judgment against the previous owner for the said amount. When Mr Steinmuller purchased the property at the sale in execution, the judgment debt was still due. The body corporate sent Mr Steinmuller an invoice stating that an amount was owed to them for the property purchased (the clearance figures), which had to be paid before the body corporate would provide the clearance certificate. According to the terms of the sale in execution, Mr Steinmuller was required to pay any levies that were owed to the homeowners’ association or body corporate. He insisted on receiving the ledgers containing the sums claimed for levies for the specific period, as well as the resolutions passed by the body corporate’s trustees regarding the interest charged thereon. The body corporate declined to give the requested information. It stated that Mr Steinmuller was not yet the owner and therefore not entitled to receive it. Due to this, he filed an application with the High Court of Gauteng, requesting an order directing the body corporate to sign all documents and take the required actions to enable the transfer of the property into his name, against payment of R150 000 into a trust account as security for the levies that the body corporate was owed. The High Court granted his application with an increase of the sum to be paid into a trust account as security. The judgment debt that the body corporate acquired against the property’s former owner was not included in the sum granted. According to the court’s ruling, a judgment debt is not an obligation owing to the property and thus should not be a burden on the new purchaser. The body corporate appealed to the SCA with the National Association of Managing Agents (NPC) as co-appellant. The SCA ruling will be discussed in part 2 hereof. 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. Powered by SucceedGroup