Introduction to sectional title

Introduction to sectional title

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SECTIONAL TITLE – SOME BRIEF EXPLANATIONS

WHAT IS SECTIONAL TITLE?

A Sectional Title development scheme (usually referred to as a ‘scheme’) provides for separate ownership of a property by individuals. These schemes fall under the control of the Sectional Title Act. No. 95 of 1986 (As revised), The Sectional Titles Management Scheme Act 8 of 2011 and Community Scheme Ombud Services Act 9 of 2011).

WHAT DO I OWN?

In buying into a scheme, you will acquire a section (or sections), and an undivided share of the common property. These are collectively known as a Unit. A section extends to the midpoint of outer or dividing walls, the lower part of the ceiling and upper part of the floor.  In Heritage Estate, gardens and carports are exclusive use areas registered through the Management Rules.  Garages and storerooms are sections.

WHAT IS COMMON PROPERTY?

The common property is that part of a scheme that does not form part of any section.

Corridors, lifts, entrance foyers, outer walls, foundations and the roof are all part of the common property. As mentioned above, some parts of the common property are designated as exclusive use areas.

WHO CONTROLS THE COMMON PROPERTY?

The common property is controlled by the Body Corporate. The Body Corporate is governed by the duly appointed Trustees. The practical implication of this is that even though parts of the common property are designated as exclusive use areas, in many respects they are still controlled by the Body Corporate and are therefore subject to the rules of the scheme.

WHAT IS THE BODY CORPORATE?

The Body Corporate is the collective name given to all the owners of units in a scheme. It comes into existence as soon as the Developer of the scheme transfers a unit to a new owner. All registered owners of units in a scheme are Members of the Body Corporate. The Body Corporate controls and runs the scheme.

Day-to-day administration of the scheme is vested in Trustees who are appointed by the Body Corporate. Major decisions regarding the scheme are made by the Body Corporate, usually at the Annual General Meeting (AGM), or at a Special General Meeting. At these meetings, matters that affect the scheme are discussed. Audited Financials and Budgets are ratified, Rules can be amended, and Trustees are appointed.

Every Member of the Body Corporate is entitled to vote at these meetings, providing that the Member does not have a judgement or court order against them relating to arrear levies or breach of contract. Members in default can only vote in circumstances described when passing a special or unanimous resolution as defined in the Act or Prescribed Management Rules. Unless otherwise determined by the Developer at the time that the register was opened, or subsequently by the Body Corporate by means of a Special Resolution, an individual Member’s voting power is governed by the Member’s percentage ownership of the entire scheme. This percentage is known as the Participation Quota (PQ).

WHO ARE THE TRUSTEES?

The Trustees are usually owners of units in a scheme who have been entrusted with the task of looking after the scheme on a day-to-day basis. Trustees are appointed by the Body Corporate at an AGM and usually hold office until the next AGM. The Managing Agent, members of his/her staff or an employee of the Body Corporate may not be a Trustee.

The minimum number of Trustees for a scheme is two. The Act and Rules no longer stipulate a minimum or maximum number of Trustees, allowing the Body Corporate to make that choice annually at the AGM. Ideally, a Trustee should possess skills or qualities that will be of benefit to the scheme. Accounting of legal knowledge, organizational abilities, knowledge of electrical or mechanical matters, the ability to type and bookkeeping skills are much in demand, and can save the Body Corporate a lot of time, trouble and money.

Above all, a Trustee should be a “people person” and a good mediator. It is permissible to appoint a Trustee who does not own a unit in the scheme or the spouse of an owner of a unit in the scheme. Trustees work on a voluntary, unpaid basis, although in special circumstances the Body Corporate may be paid for acting as a Trustee. All Trustees are, of course, entitled to be reimbursed for all legitimate costs incurred by them in execution of their duties. At the first meeting of the Trustees after being appointed, the Trustees elect a Chairman who holds office until the next AGM, but can be replaced by either the Body Corporate of the other Trustees during his or her term of office.

MAY THE RULES BE CHANGED?

Yes. The Body Corporate can change or amend the rules, providing that these changes are not against the intentions or spirit of the Sectional Titles Act or prescribed rules. The procedure that must be followed before such changes can be made, is clearly defined in the Act. Proposed changes must be put to Members of the Body Corporate at a general meeting, at which Members will be able to discuss the proposals before being asked to vote for or against the changes.

Amendments to Management Rules require a Unanimous Resolution, while Conduct Rules can be changed by a Special Resolution.

Please note that such amendments will not become effective until they have been approved and filed at the CSOS.

WHAT IS THE LEVY?

The costs incurred in running a scheme have to be paid by the Body Corporate. These costs include:

  • Security;
  • Insurance Premiums;
  • Waste Management;
  • Cleaning and hygiene services for the common property;
  • Repairs and maintenance of the common property;

Wages and salaries;

  • Management fees;
  • Unmetered and common property utilities are recovered based on actual consumption;

These costs are paid by individual owners in the form of a monthly levy, calculated in accordance with the Participation Quota for their unit, unless the Developer at the time of opening the register, or the Body Corporate by means of a Special Resolution, allocated a different value to a particular Unit. In addition to the above, the Body Corporate is obliged to establish a fund for future maintenance and unexpected expenses. The size of this fund is not specified in the Act, but a wise Body Corporate will make sure that the fund is adequate for the size of the scheme and the present condition of the property.

If the fund becomes excessively large, The Act does not allow any part of the excess to be refunded. However, the excess could be used to subsidise future levies, to improve the common property, or to bolster the compulsory Reserve Fund.

HOW IS THE LEVY CALCULATED?

At the inception of a scheme and again before every AGM, the Trustees have to prepare a budget for the following year. Before the AGM, the proposed budget must be sent to all the Members of the Body Corporate for their consideration and for subsequent discussion at the meeting.

The Body Corporate can either accept the budget or can ask for changes to be made.  Once the budget has been accepted, the total annual cost is divided into monthly amounts and each owner is then “levied” a monthly amount, as mentioned above.

MAY THE SPECIAL LEVY BE CHARGED AT OTHER TIMES?

Yes. In an emergency, the Trustees can impose a Special Levy to cover unforeseen expenses, in addition to which the Body Corporate can approve a special levy to cover the cost of improvements to the common property.

WHAT IS THE MEDICAL LEVY?

The additional medical levy is payable monthly, and covers the Basic Bundle of Services, including emergency services, wellness management, staffing of small sick bay, basic blood pressure, glucose, urine, cholesterol testing and monitoring.

WHAT ARE MANAGING AGENTS?

Managing and administering a scheme, particularly a large scheme, is complicated and time consuming. Most Bodies Corporate decide to appoint a Managing Agent, usually a company or close corporation which specializes in this aspect of Sectional Title administration. A Managing Agent must be registered with The Estate Agents Board and hold a Fidelity Fund Certificate issued by the Board.

The Managing Agent should be appointed by means of a written agreement. The contract will be automatically renewed on the anniversary of signing, unless either party notifies the other party of their intention not to renew the contract. The Managing Agent sends out monthly statements, collects levies and all other money due by the owners to the Body Corporate. On behalf of the Body Corporate, he or she will keep the books, assist with recovery of unpaid debts, prepare the annual budgets, arrange for quotations for repairs and maintenance, send out notices and generally assist the Trustees with the numerous time consuming tasks that arise in administering a scheme.

WHAT HAPPENS IF I FAIL TO PAY MY LEVY?

The Body Corporate can take legal action to recover unpaid levies and legal fees will be for the defaulting owner’s account.

All owners in a scheme have to a pay a levy. An owner who is in arrears with his or her levy, and has a judgment against his name may not vote at a general meeting of the Body Corporate, except for proposed special or unanimous resolutions. The Body Corporate is entitled to charge interest on arrears.

WHAT ABOUT INSURANCE?

The Sectional Titles Act requires the Body Corporate to ensure that the buildings are insured to the value of their replacement cost. The insurance must cover all the sections and all improvements to the common property.

The insurance premium forms part of the monthly levy. If you feel that the replacement value, as agreed to at an AGM, is not sufficient, you are at liberty to increase the amount for which your section is insured, for which you will have to pay the additional premium increase. Please note that the Body Corporate insurance only covers damage and destruction of the fixed property. It does not cover the contents of your section. You must make sure that your furniture and equipment are separately and adequately insured by means of a suitable policy.

MAY I FIT A DIFFERENT TYPE OF FRONT DOOR?

The front door is visible from common property and in the interests of uniformity; the door must conform to an approved design.

MAY I CHANGE THE STYLE OF THE WINDOWS?

Windows are generally visible from common property. Therefore, permission would be required.

MAY I ENCLOSE MY BALCONY?

The question regarding enclosing balconies is a very complicated one. A balcony may form part of a section, part of the common property or it may be an exclusive use area. Even though the balcony forms part of a section, it is by no means certain that it can be enclosed. A balcony is usually considered to be a non-habitable area. Enclosing the balcony would convert it to habitable area, in which case planning permission from the local authorities would be essential, and might not be granted. If the balcony forms part of the common property, enclosing it would effectively extend the section, which would require an ordinary resolution from the Members of the Body Corporate. The Owners would have to also consider whether or not enclosing the balcony would have a material, or negative effect on the value of the units.

MAY I INSTALL MY OWN SATELLITE DISH?

No. A satellite receiving dish must be mounted outside on the common property which will require consent from the Body Corporate. Apart from this, an owner cannot do anything that will affect the value or aesthetic appearance.

MAY I SELL MY UNIT?

Yes, of course you can. However, you must notify the Body Corporate that you have sold your unit. Please note that the Act requires an owner of Sectional Title unit to notify the Body Corporate of any change in the status of bond registered over the unit, such as the registration of a second bond, or cancellation of an existing bond.  Bear in mind that the Developer, or his nominee in terms of the Offer to Purchase and Management Rules has the first option to sell your unit.  If the Developer cannot sell within 180 days, then you may appoint your own Estate Agent.  A clearance certificate will only be granted by the Body Corporate if all amounts due and payable, including the Levy Stabilisation Fund amounts have been paid.

WHAT HAPPENS IF I BREAK THE RULES?

The Act requires that the Trustees make sure that the individual owners in a scheme adhere to the rules of the scheme. The 2011 Act established the Community Schemes Ombud Service which will mediate and provide a decision that is final. 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