Sectional title schemes can be used for a wide variety of development types. As well as traditional blocks of flats, sectional titles schemes can be shops, offices, even factories, or combinations of these.
The Sectional Titles Act, 95 of 1986 (the Act), which usually refers to “the building or buildings” in its provisions, accommodates schemes with more than one building, and buildings that comprise only one section. This allows for schemes that consist of freestanding houses, as can be seen in many large residential developments these days. The question is, why are these estates developed as sectional title schemes rather than as home owners’ associations (HOAs)?
There are a number of advantages to the developer in using sectional title as the development methodology for these schemes, rather than establishing an HOA.
- The site does not have to be subdivided into individual erven.
- The extent of the land allocated to each dwelling could be smaller than the allowance in terms of the zoning scheme, thus allowing greater density of buildings.
- There is existing legislation in the form of the Sectional Titles Act and prescribed rules that provide for the management of the development. The developer therefore saves on the cost of establishing the management body and its rules.
- The developer can reserve the right to extend the scheme without the holding costs of retaining ownership of part of the land in the development. The rights can be fractionalised and sold to fund the development.
There are some problems with this development methodology, for the scheme and for the individual owners.
The nature of the development, freestanding houses, suggests to some owners that they are independent of each other and of the management body. This perception is not held by owners in a block of flats, which is the conventional use of sectional title.
Some owners therefore want to do their own exterior maintenance; change the exterior colour of their houses; they do not see the need to pay an additional contribution to the administrative fund on account of their exclusive use gardens and parking bays; they do not see the need to obtain a special resolution if they want to extend their homes; and they want to be able to arrange their own building insurance policy on terms best suited to themselves.
While owners in HOAs usually have to comply with architectural and building guidelines when maintaining, renovating and extending their properties, normally they do not have to get the consent of the other owners.
It might be theoretically possible to change a development of freestanding buildings from a sectional titles scheme to an HOA, but the circumstances would have to be exceptional to make it worth the time, trouble and cost.
Essentially, the scheme would have to be deemed destroyed, requiring the consent of not only all the owners, but all the bond holders and any person with registered real rights in the scheme, and the local municipality would have to consent to the required subdivision of the land. At the same time a partition agreement between the owners would have to be made to take care of their shares in the common property. The legal entity that will serve as the management body would have to be established, either as a non-profit company or a common law association, the land subdivided and the resulting erven transferred into the names of the individual owners.
Certain prescribed management rules could be changed to afford owners a little more freedom. Prescribed management rule 68 could be altered to remove the so-called “harmonious rule”, which would allow owners to decide on the exterior paint colour of their houses. While the ultimate responsibility of the body corporate to maintain the common property cannot be changed except by Parliament changing this provision in the Act, a scheme could make a rule allowing owners to perform the maintenance.
The usual practice in sectional title schemes for owners to pay levies according to the participation quota of their sections can be changed by making a specific type of rule. This would allow owners to pay all the costs incurred in the maintenance of their houses.
While it is possible for a scheme to make rule changes that address some of the potential problems inherent with using sectional title to develop estates of free standing houses, perhaps the long term benefit of owners would have been better served by developing these estates HOAs.
Article reference: Paddocks Press: Volume 11, Issue 04, Page 01.
Anton Kelly is an extremely knowledgeable specialist Sectional Title and HOA teacher and consultant. Having been the lead teacher on all the Paddocks courses for the last 7 years, Anton lives and breathes Sectional Title and HOA law, all day every day. There are not many issues he hasn’t come across before.
This article is published under the Creative Commons Attribution license.