Buyers beware… Before purchasing an erf/plot/stand within a Homeowners’ Association (“HOA”), ensure that you have read and understood the provisions of the HOA’s Constitution or Memorandum of Incorporation.
Many HOA’s have a provision applicable regulating members’ compliance with “commencement of construction” and “completion of construction” dates. The calculation and implementation of these timelines differ from HOA to HOA. For example, the provision may require that a member commence construction on an erf within 24 – 36 months following the date of registration of the transfer of ownership of the erf from the developer to such member. It may be further required that once construction has commenced, it must be completed within 12 months. Such a provision may be transferable to the subsequent purchaser of the erf, who, as successor in title, will be responsible to adhere to the provision as it applied to the seller, or the provision may allow for an extension of the period in which the member may comply with the provision.
Commencement of construction is often defined as approval by the Trustees / Directors or HOA Architectural Review Committee of the building plans submitted by the owner. While completion of construction may be evidenced by the submission to the HOA of a Certificate of Occupation issued to the member by Council.
Should a member fail to comply with either the commencement of construction or completion of construction deadlines, they will be liable to pay a building penalty due to non-compliance, which penalty may increase over time until such time as the relevant provisions are complied with.
The Conventional Penalties Act 15 of 1962 defines “penalty” as the liability to pay a sum of money or to deliver / perform anything for the benefit of a creditor, which for purposes of this article, is the HOA, in respect of an act or omission in conflict with a contractual obligation, prescribed by the HOA’s governing documentation, being either its Constitution or Memorandum of Incorporation.
The Conventional Penalties Act further provides that the Court may reduce a penalty to such an extent as it deems equitable or reasonable in the circumstances, should the penalty be considered out of proportion to the prejudice suffered by the creditor. In determining the extent of the prejudice, the Court will consider the creditor’s proprietary interest and any other rightful interest which may be affected, for example, any nuisance, damage or security risks being caused to other members resulting from building activity which should have been completed, and the negative impact on property sales and prices of other properties in the HOA. The Court will further consider the nature and the amount of the penalty, and the aim of the penalty, which is to compel compliance with the Constitution or Memorandum of Incorporation.
When applying a penalty clause in the HOA’s Constitution or Memorandum of Incorporation, reference should also be made to the Promotion of Administrative Justice Act 3 of 2000, which defines “administrative action” as any “decision” (imposing a penalty) taken by a juristic person (HOA) when performing a “public” (HOA members) function in terms of an “empowering provision” (Constitution, Land Use Planning Ordinance, Memorandum of Incorporation and the Companies Act) which adversely affects the rights of any person and has a direct, external legal effect.
The Promotion of Administrative Justice Act further provides that any such administrative action, which materially and adversely affects the rights of any person, must be “procedurally fair”, a determination which depends on the circumstances of each case. In order for an administrative action to be considered as procedurally fair, adequate notice of the nature and purpose of the proposed administrative action should be given, a reasonable opportunity should be granted in order to make representations, a clear statement of the administrative action should have been made, and the right of review or appeal should be available, as well as the right to request reasons for the administrative action.
To avoid any potential unwanted surprises following registration of transfer, exercise caution when purchasing an unbuilt erf within a HOA, paying close attention to the provisions of the HOA’s Constitution or Memorandum of Incorporation. If in doubt, contact us at Paddocks.
Article reference: Paddocks Press: Volume 10, Issue 12, Page 2.
Zerlinda van der Merwe has recently been admitted as an Attorney of the High Court. She is a specialist Sectional Title Attorney (BA LLB LLM) and soon to be qualified Conveyancer. Zerlinda forms part of the Paddocks Private Consulting Division and brings a wealth of experience and additional services. If you would like to schedule a consultation with Zerlinda, please contact Nicole on 021 686 3950 or firstname.lastname@example.org.
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