January 10, 2017
Sectional Titles was introduced to the South African legal system in 1971 with the introduction of the first Sectional Titles Act, 66 of 1971, which act was later replaced by the current Sectional Titles Act, 95 of 1986 (STA). The current act stays in place as far as the registration of schemes are concerned and remains under the jurisdiction of the Department Rural Development and Land Reform.
However, the management part of the current act is now repealed and replaced by the Sectional Titles Schemes Management Act, 8 of 2011 (STSMA), which act was proclaimed to commence on 7 October 2016. This act should also be read with the Community Schemes Ombud Service Act, 9 of 2011 (CSOSA). (The latter is applicable to all Community Schemes and not just Sectional Titles.)
Purpose of the act:
To separate the provisions of the STA that pertain to registration and survey matters from those that pertain to governance and administration.
What is new?
Among others, some of the significant or interesting changes that influence the daily lives of Sectional Title owners and occupants can be summarized as follows:
The act distinguishes between the Administrative and Reserve Funds of the Body Corporate. The Body Corporate must establish and maintain an Administrative fund reasonably sufficient to cover the estimated annual operating costs of the scheme and must be used for this purpose in accordance with the approved budget and trustee resolutions.
One of the most significant changes in the STSMA is that a Body Corporate must now establish and maintain a Reserve Fund, reasonably sufficient to cover the costs of future maintenance and repair of common property, but not less as such amounts that may be prescribed by the Minister. At this point it is suggested that it will be required to set aside 25% of the budgeted annual levy figure.
10 year Maintenance, Repair and Replacement Plan:
The Body Corporate must prepare a written maintenance, repair and replacement plan setting out the following:
- Major capital items expected to require maintenance, repair and replacement within the next 10 years.
- The present condition or state of repair of those items.
- The time when those items will need to be maintained, repaired or replaced.
- The estimated costs thereof.
- The expected life of such items before costs is expected to be incurred.
- Any other information that may be relevant.
Payment of levy to the Community Schemes Ombud Service:
In terms of CSOSA all community schemes are now obliged to make a contribution to the Chief Ombud in the form of a levy. The levy is calculated at 2% of the amount by which the monthly levy exceeds R500, but is capped at a maximum of R40 per month. The levies must be collected by the Community Scheme and paid over to the Ombud quarterly as from January 2017.
The making available of rules:
A complete copy of the rules must be filed at the Chief Ombud at all times where it will be available for inspection. The act specifies certain instances where rules must be made available to owners or occupiers of a scheme. A copy of the rules must be handed to each new owner or occupier of a unit. An owner must in this regard also notify the Body Corporate of any change of occupancy of a unit.
Approval of Change in Rules:
Any change in the prescribed management or conduct rules by unanimous or special resolution, must first be approved by the Chief Ombud.
Definition of Primary Section vs Utility Section:
The act distinguishes between a Primary Section, a section designed for human occupation, and a Utility Section, a section which is designed to be used as an accessory to a primary section.T
his definition is relevant in certain provisions in the act, such as voting at meetings, where the act refers to the owners of primary sections or participation quotas of primary sections only.
Proxy not allowed for more than 2 persons:
The act now provides that a person may not hold more than 2 proxies at an Annual General Meeting. The reasoning for this limitation is said to be to make AGM’s more democratic and preventing one person to dominate at such meetings.
Trustees may now attend meetings by electronic means (such as Skype) and are then considered to be personally present. Trustees may also put a matters to the vote, by notice sent to all trustees which trustees may approve the resolution by signing such a notice before the closing date of such notice.
Cognisance must be taken in this regard of the provisions of CSOSA where it provides for the duties of a “Scheme Executive”, which includes the obligation to attend all meetings unless excused in writing by the Chairperson.
Annual General Meetings:
AGM’s must be held within four months from the end of the financial year, which now runs from 1 October to 30 September, unless otherwise resolved.
The obligation to hold an AGM also falls away, in the event that, within at least one month before the end of the financial year, all members in writing waive the right to meet and consent in writing to motions that deal with all the items of business that must be transacted at the AGM.
Insurance policies must cover the buildings and common property and must specify a replacement value for each Unit and Exclusive Use Area. The Body Corporate must obtain a replacement valuation of the all buildings and improvements every three years and present such at the AGM.
The Body Corporate must take out Public Liability Insurance for an amount not less than R10 Million as prescribed.
Executive vs Ordinary Managing Agent:
An ordinary Managing Agent may still be appointed to perform certain specified financial, secretarial, administrative or other management services under the supervision of the Trustees.
The act now provides for the appointment of an Executive Managing Agent to perform the functions and exercise the powers that would otherwise be performed by the trustees, subject to certain conditions.
Appointment of Administrators and rescue provisions:
The act makes provision for instances where a Body Corporate has either fallen into financial trouble or has become ungovernable in which instance an Administrator may be appointed to assist in the rehabilitation of the Body Corporate.
This is by no means a complete list of the changes and innovations of the new act and owners and/or occupiers of Sectional Title Schemes are urged to educate themselves in this regard. The Chief Ombud is said to start implementing training programmes and make material available to the general public which may prove very helpful in this respect.
Mariette van Zyl | Director
January 10, 2017
“When you’re talking about building a house, you’re talking about dreams” (Architect Robert Stern)
“Build, or Lose the Plot”
- In 2009 a buyer bought a residential plot in a large development for R560,000
- A condition of the sale (recorded in the title deed) was that the buyer had to build a house within 18 months
- If the buyer failed to build by the deadline, the developer could either extend the period or demand retransfer – in which latter event the buyer would get his money back, but without any interest
- Twice, the property was on sold. Both times the sales lacked the developer’s permission as was required, but both times the developer regularised the sales by entering into new agreements with the buyers. The final buyer (in 2013) was a trust which had paid R840,000 to the second owner. The trust agreed with the developer to build within 9 months. The agreement was that if the buyer failed to build on time it would transfer the plot back to the developer against payment of the original R560,000 (not the R840,000 it had actually paid)
- The trust failed to build within 9 months and the developer asked the Court to order retransfer of the plot to it. It offered to repay the trust the full R840,000 it had paid to the second owner – a “rather gracious gesture” said the Court since the trust was only actually entitled to R560,000.
The outcome – “Bye-bye plot”
The trust’s defences to the developer’s claim for retransfer all failed –
- The Court rejected the trust’s argument that the trustee signed the agreement without authority on factual grounds. In any event the trust had from day one been in default of the building requirement
- Secondly the trust claimed protection under the CPA (Consumer Protection Act)’s unfairness provisions but the Court held that there had been no contravention –
- The CPA didn’t apply as there was no “transaction” (as defined in the CPA) between the developer and the trust, which had bought from an interim owner not from the developer; and anyway the obligation to build wasn’t “goods or services” supplied by the developer to the trust
- Moreover, the agreement was not “unfair, unreasonable and/or unjust” – the trust wasn’t forced to sign, it understood what it was committing to, it was in a position to build, and there was no suggestion that the 9 month building period was unfair
- Finally, the Court rejected the argument that the agreement violated public policy or was “contra bonos mores” (against good morals), commenting that “in general ….. parties should comply with contractual obligations that had been freely and voluntarily undertaken”.
The trust was therefore ordered to retransfer the property to the developer. It loses the plot itself, all capital appreciation in it, and 3 years’ interest on its R840,000.
January 10, 2017
“She just did not want to be liable if he defaulted, a common regret felt by those who stand surety for defaulting debtors” (extract from judgment below)
In the beginning …
But in the end …
The mother, the son and the suretyship
- A mother signed an unlimited suretyship as “co-principal debtor” for her son’s bank debts totaling almost R4.8m from a home loan, an overdraft, and a credit card account.
- After her son’s estate was sequestrated the bank sued her for the shortfalls.
- The mother tried everything she could to evade liability. Her main defence was an attack on the validity of the suretyship, and she supported this with a string of claims, often self-contradictory. The bank official had misled her into thinking that she was signing not a suretyship but simply a consent form for an account migration. She hadn’t read the document. She had read the heading. Blank spaces in the document were filled in later. It conflicted with an oral agreement. It was limited not unlimited. Her signatures on other documents had been forged.
Let the signer beware – “I signed by mistake” won’t cut it
January 10, 2017
“My best entrepreneurial advice is to start” (Dave
Morin, entrepreneur, angel investor, CEO and co-founder of social network Path)
What is a private company?
7 advantages of private companies…..
A company has “perpetual succession” – it survives the death/incapacity/insolvency/exit of the directors and shareholders. That carries a host of practical benefits, including making it a possible estate planning tool.
Transferring ownership and management is easy – shareholders and directors change but the company lives on.
Directors and managers have limited liability. Note however that directors and senior managers can be held personally liable in cases of reckless or fraudulent trading, non-compliance with statutory duties and the like – the “new” Companies Act in particular has imposed a whole new set of duties and risks in this regard. Bear in mind also that that your limited liability falls away to the extent that you sign personal surety for company debts.
Shareholders are in general not liable for the company’s debts, although they do risk liability for some tax debts e.g. if they control or are regularly involved in the management of the company’s financial affairs.
It is generally easier to raise funding for a company than it is for a sole tradership or partnership.
Similarly, a company is adaptable to both small and large businesses, so if you are starting off small but planning to grow substantially, consider using a company from day one.
- Tax: Sometimes an advantage ….. see below.
… and 3 disadvantages
Formation: Unlike sole traderships and partnerships, companies require formal registration and compliance with various formalities. Factor the attendant delay and cost into your plans. Using a shelf company can reduce the hassle but make sure you buy it from a reputable business.
Costs of administration: Prepare for a higher administrative and regulatory burden than with your other choices. Factor in both the time and financial costs of complying with the host of legal requirements, statutory returns and general red tape associated with companies. Find out up front for example whether you are going to have to pay for a full audit or independent review every year.
- Tax: Sometimes a disadvantage ….. see below.
The tax angle
The bottom line is this – take full professional advice on both the legal and the tax implications of using each type of entity before choosing.
January 1, 2017
I am sure that the majority of South Africans would be glad to see the back of 2016, the year most will remember for global events like Brexit, a new American president, possible junk status and so forth.
What will 2017 look like …? Most economists do not predict much growth – at best a stable property market. The reasons remain the political uncertainty and the looming possibility of junk status. I however believe that there are still enough positives to look forward to. 40% of loans are granted to first time home buyers and with property prices stable, first time buyers still believe that it is the right time to enter the property market. We see more and more new developments with people tending to relocate to security Estates.
Let us stop pointing out problems and become part of the solutions! Learn from our past and create the future we want in 2017!