An Overview of the Types of Residential Properties - Part Two

An Overview of the Types of Residential Properties - Part Two

Private Property South Africa
Property Power

This is the second in a two part series on different types of residential properties. You can view part one here

Sectional Title Schemes

Examples of sectional title units are flats, townhouses, semi-detached houses, duet houses, holiday apartments, shops or office blocks. In the case of sectional title units, different people each own a portion of a building or buildings. It is not a requirement that the buildings be physically joined together, so a sectional title scheme can comprise of freestanding units on a property.

Common Property and Exclusive Use Areas
All owners jointly own the land itself as well as all the common property. Common property comprises areas like staircases, lifts, corridors, communal washrooms, driveways, roads, recreation facilities, entrance areas, the exterior of the buildings and so on. Exclusive use areas are for example carports, staff quarters or storerooms, which are used solely by the individuals entitled to use them (or in some instances these areas are rented from the Body Corporate).

The Body Corporate
The Body Corporate is responsible for the control, administration and management of the scheme. All the owners of the units in the scheme form the Body Corporate. At an annual general meeting of all the owners, trustees are elected to carry out the day to day running of the scheme. The duties of trustees are:

  • Ensuring levies are collected on time;
  • Arranging regular annual general meetings (AGMs);
  • Running the sectional title scheme efficiently;
  • Controlling, managing and administering the common property areas and the body corporate assets and affairs;
  • Making sure owners and tenants comply with the schemes rules and the provisions of the Sectional Titles Act;
  • Making sure that the schemes buildings and assets are insured to replacement value;
  • Raising special levies when unforeseen expenses occur;
  • Making sure the common property is maintained and repaired where necessary.

Not all trustees have to be owners. One can become a trustee by being elected at an annual general meeting. You have the right to make yourself available to be a trustee.

Every owner makes a monthly monetary contribution to a fund for the general expenses of the scheme, generally referred to as the levy. The levy may include:

  • Rates and taxes payable to local authority by the scheme,
  • Water,
  • Electricity costs of the common areas,
  • Insurance replacement costs of buildings,
  • Provision for anticipated maintenance expenditure,
  • Managing agent fee,
  • Annual audit fee,
  • Complex security,
  • Common property garden service, etc.

The amount payable by each owner is calculated by a formula called the 'participation quota'. Basically it is calculated by the percentage of the floor area of that owners' section to the total floor area of all the sections in the scheme. Sectional title owners may also have to pay a "Special Levy" to cover a certain Body Corporate project such as fitting new electric gates and fencing or installing a pool or tennis courts, etc.

Paying your monthly levy is not an option, it is an obligation by law, and failing to pay the levy could result in a first summons (legal action) against the owner, Repossession- and Sale in Execution of the property. The whole sectional title scheme could lose value if some of the owners don't pay their levies. Remember that this is a team effort and everyone loses if someone doesn't pull his weight. Make sure that the majority of the units are owned, and not rented. In most cases owners take better care of their properties than tenants.

Always take the levy and/or any special levies into account when budgeting for your new sectional title property to avoid financial difficulty.

Rules & Regulations
The scheme is managed by two sets of rules, set up by the Body Corporate / Developer:

  • Management Rules - These are provisions regarding the management of the scheme, i.e. how trustees are elected, their obligations, the voting procedure at annual general meetings, etc.
  • Conduct Rules - More commonly known as 'House Rules', these regulate the conduct of the owners and tenants, i.e. rules regarding driving speed within the property, the number of pets allowed, etc. The Body Corporate can, by a special resolution (75% majority vote), amend, add or delete any conduct rules.

A unit can be subdivided or extended as long as the owner has the approval of the Body Corporate and the Local Authority, and goes through the necessary legal chain of events like getting the sectional plan for subdivision/extension drawn up and getting the building plans drawn up, and applies to the Deeds Office to register the alteration.

When looking at purchasing a unit in a sectional title scheme, it is in your best interest to insist that the estate agent furnishes you with the following information:

  • The rules governing the scheme.
  • The names of the trustees of the body corporate and managing agents.
  • The amount of the levy payable in respect of the unit and whether any increase is anticipated.
  • The extent to which the body corporate has made provision for future maintenance to the scheme.
  • Financial statements of the Body Corporate.

Be aware of the fact that there might be a large area of open land within the scheme, on which the developer or body corporate may have the right to extend the scheme by way of building more units. If this is the case, it must be recorded as a clause in every contract of sale of each unit in that scheme that the developer or body corporate has a real right to extend the scheme. If this clause does not appear in each contract of sale of the existing units, the contract is voidable at the option of the buyer.

Share Block Schemes

As a buyer of a share in a share block scheme you do not own the apartment you intend to occupy. The property is registered in the name on the Share Block Company. You merely buy shares in the Share Block Company, and by obtaining these shares you acquire the right to occupy the apartment in question. Your rights and duties are regulated by the share block company's Memorandum and Articles of Association, and by a use agreement between you and the company.

Every owner makes a monthly levy contribution or the general expenses of the scheme. The amount payable by each owner is usually fixed in relation to the number of shares held by a shareholder, and is used for the control, management, administration, upkeep and repair of the scheme.

If the company has taken out a Mortgage Bond to purchase the building, part of the company's mortgage debt is allocated to each share block. This is normally referred to as the allocated loan. In this case you undertake to lend to the company the amount allocated to your share block, so that the company can repay its debts. Shares in a share block company can be bought either directly from the company or from an existing shareholder, in which case all shares, rights and obligations are transferred to the new owner.

A share in a share block company is not immovable property, so you cannot finance the purchase by means of a mortgage loan.

Property Time-sharing Schemes

This concept was formalised in 1983, with the introduction of the Property Time-Sharing Control Act. Time-Sharing schemes are established in four different ways:

  • By means of a Share Block Scheme - You actually buy shares in the Share Block Company and, in this way, enter into an agreement with the company which regulates the time that, and areas which, you may occupy and use.
  • By means of co-ownership of a unit in a Sectional Title Development Scheme - In this case a co-ownership agreement is drawn up, which indicates how contributions (levies) will be paid and what times you may occupy the unit. Rules and regulations, which govern the sectional title scheme, need to be modified to accommodate the time-sharing requirements and it is advisable that these rules be checked carefully before signing any agreements.
  • By means of membership of a club - The club's constitution will determine when and how individuals occupy their units and how contributions (levies) are calculated and paid.
  • A scheme can also be declared as such by the Minister in the government gazette.

There is a code of conduct for the time-sharing industry, which stipulates that every time-sharing agreement, in terms of which an interest is bought or sold, must contain a "cooling-off" period of 5 days. This means that after signing an offer to purchase a time-sharing interest, a purchaser is entitled to terminate the agreement within 5 days without incurring any penalties or forfeiting any money.

Housing Development Schemes for Retired Persons.

These schemes usually have extraordinary features, which other developments don't have, such as a frail care centre or full-time nursing care, restaurant facilities, great emphasis on security, etc. There can also be certain stipulations, which make living in these schemes more attractive, like only allowing retired persons and spouses of retired persons to occupy the units so that they share common interests. In most cases these schemes are based on sectional title schemes, and can also be based on share blocks, club memberships or where the Minister, by notice in the government gazette, declares a housing development scheme.

Retirement scheme units are usually sold on a so called 'life rights' basis, whereby a buyer is entitled to occupy the unit for as long as he lives. What happens when the buyer dies is normally regulated by the contract of sale between the buyer and the developer. A financial institution will not finance a 'life right' property.

Just because a development is called a retirement scheme, does not mean that it is one. The Housing Development Scheme for Retired Persons Act 65 of 1988 regulates a retirement development, although certain developments do not comply with the exact specifications of the act. This needs to be disclosed to the buyer, although he will also still be covered by other acts such as the Sectional Title Act 95 of 1986 or the Share Block Act 59 of 1980.

A purchaser should however be cautious when buying a life-right in a retirement scheme, which is not regulated by the Housing Development Scheme for Retired Person Act, as they will fall outside of the protection of the act.

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