SECTIONAL TITLES SCHEMES MANAGEMENT ACT NO. 8 OF 2011

INTRODUCTION

The Sectional Titles Schemes Management Act (“STSMA”) was signed by the President on 11 June 2011 and was held in abeyance until the Minister of Human Settlements signed the Regulations into effect on 7 October 2016. From this date, all sectional title schemes are bound by the provisions of this Act and the Regulations thereto.

The STSMA brings about significant changes to the laws relating to and the manner in which sectional title schemes are managed and regulated. The STSMA repealed and amended various sections of the Sectional Titles Act No. 95 of 1986, most notably those referring to the management of a scheme. The STSMA also introduces for the first time in sectional title legislation reference to the “ombud’ and “chief ombud” which is dealt with further below. While the new legislation retains the nature of the old act it has introduced some new aspects.

The purpose of this article is to highlight the changes that the STSMA introduces.

ADMINISTRATIVE AND RESERVE FUNDS

?The STSMA requires a body corporate to establish two funds: an administrative fund and a reserve fund. Previously a body corporate would only need to establish a single fund with one bank account.

Contributions (levies) collected from owners must be paid into the administrative fund and used only to fund operating expenses in the current financial year. These operating expenses include inter alia provisions for the repair, maintenance and administration of the common property, payment of rates and taxes and other municipality charges and the payment of insurance.

A portion of the contributions must also be allocated to the reserve fund and used to pay for future expenditure determined by a maintenance, repair and replacement plan, which the body corporate is required to draw up.

The Regulations to the STSMA prescribe how the reserve fund account is to be managed:

? If the amount in the reserve fund at the end of the financial year is less than 25% of the total contributions to the administrative fund, the budgeted contribution to the reserve fund must be at least 15% of the total budgeted contribution to the administrative fund;

? If the amount in the reserve fund is between 25% - 100% of the total contributions to the administrative fund, the budgeted contribution to the reserve fund must be at least the amount budgeted to be spent from the administrative fund on repairs and maintenance to the common property in the financial year being budgeted for; and

? If the amount in the reserve fund at the end of the financial year is equal to or greater than 100% of the total contributions to the administrative fund, no minimum contribution to the reserve fund is set;

The rule of thumb it appears is that the act intends for body corporates to keep in their reserve fund a minimum of 25% of the yearly contributions to the administrative fund. So if R 100, 000 is paid to the administrative fund in levies, an extra R 25, 000 is to be allocated to the reserve fund.

A body corporate will be required to prepare a plan for the maintenance, repair and replacement of major capital items on the common property going forward 10 years. A separate budget must be proposed for this purpose and included in the calculation of the reserve fund contributions to ascertain that sufficient funds exist to give effect thereto. This is set out in the newly prescribed

?Management Rule 22.

OBLIGATION TO HOLD SEPARATE RESERVE FUND BANK ACCOUNT

The reserve fund contributions must be held in a separate banking account for the purposes of executing the maintenance plan if and when required.

LEVIES

?A new levy will be payable by the Body Corporate to the offices of the chief ombud, the details of this are set out in the Community Schemes Ombud Service Act No. 9 of 2011 (“CSOSA”).

The body corporate may now charge additional levies in regards to exclusive use areas and additionally may charge a developer that has reserved a right to extend the scheme, with a levy.

Any changes to the levy contributions must be certified in writing. In the ordinary course this occurs at the annual general meeting of the scheme.

SPECIAL LEVIES

The STSMA makes provision for the Trustees to impose a “special contribution”, commonly referred to as a “special levy” which provides for the levying of an additional amount for the payment of such expenses or liabilities not specifically provided for in the approved estimated income and expenditure at the AGM. This special contribution becomes due on the passing of a resolution by the Trustees and recovered from the owners by the body corporate.

Interestingly, the liability for payment of special levies in the event of a change of ownership was not dealt with explicitly in the repealed legislation. The STSMA provides that upon the change of ownership of a unit, the successor-in-title becomes liable for apro-ratapaymentofsuchcontributionsfromthedateofchangeofownership. Thismustbedisclosedtoallpotentialpurchasers and any deviation hereof must specifically be dealt with in an agreement of sale between the parties.

NOTIFY THE OMBUD OF A DOMICILE

The body corporate must register a domicile with the chief ombud, local municipality and local registrar of deeds. This address is to be used for the service of any legal documentation.

ASSIST SCHEMES TO RECOVER ARREAR LEVIES

The body corporate may approach the ombud to obtain an order recovering arrear levy contributions from an owner. This does not preclude the body corporate from making use of the courts to obtain levies but does provide them with another option. It is anticipated and intended that this will afford the body corporate a cheaper and faster alternative to the courts to obtain an order.

LIMIT PROXIES

For the first time a limit has been place on the amount of proxies a person may hold at a body corporate meeting. This has now been capped at two.

REMEDY FOR AN INABILITY TO OBTAIN EITHER A SPECIAL OR UNANIMOUS RESOLUTION

The chief ombud may be approached by a member of a body corporate if he is unable to obtain a special or unanimous resolution either by way of a stalemate or inability to achieve a quorum.

MANAGEMENT & CONDUCT RULES

The regulations to the STSMA has introduced both new Management and Conduct rules for sectional title schemes.

If a developer is registering a new sectional title scheme, and wishes to make any amendments to the prescribed management and conduct rules, it will need to submit these to the chief ombud in order for their offices to formally approve the amended rules. The chief ombud now needs to issue a certificate of approval for any new rules submitted to it prior to the deeds office registering any new sectional title scheme.

Furthermore, if a body corporate wishes to amend its management or conduct rules, such amendments will need to be submitted to the chief ombud for approval.

The applicable rules must be made available in either digital format or hard copy at every meeting of the body corporate. Owners and tenants should acquaint themselves with the rules and owners should ensure that the rules form part of all their rental agreements in compliance with the Rental Housing Act.?

All rules are to be approved by the chief ombud and no conduct or management rules may be irreconcilable with the management rules set out in the STSMA. For the details of the applicability of existing rules, please see section 10, subsections 9 – 12 of the STSMA.

MEETINGS OF THE BODY CORPORATE

The STSMA provides that 30 days’ notice must be given to the owners of the intention to hold a body corporate meeting (this does not include an AGM), setting out the date, time, place and proposed agenda. The STSMA introduces service of the notice to the owners by email, fax or hand delivery as opposed to only pre-paid registered post as per the repealed legislation.

The STSMA further provides that where a unanimous resolution is passed and it would have an adverse effect of any member, such resolution shall not be effective unless that member consents in writing within a period of 7 days from the date such resolution was passed.

SUBDIVISION & CONSOLIDATION OF SECTIONS

The trustees may on their own now receive and consent to subdivision and consolidation applications for sections, whereas under the old legislation a unanimous resolution would need to be passed by all members.

INSURANCE

Sectional schemes are insured as a whole. The extent of the insurance cover is to some degree standard but differences are found in regard to, for example, the insurance cover of burst geysers.

When a mortgage bond is passed over the unit, a sectional title insurance certificate is provided to the bank granting the finance, which certificate provides confirmation of insurance cover. The STSMA provides that an owner shall be entitled to independently insure his or her section against damage not specifically covered by the policy effected by the body corporate.

DUTIES OF OWNER TO NOTIFY BODY CORPORATE OF CHANGE IN OWNERSHIP/OCCUPANCY

Owners are also obliged to notify the body corporate of any change of occupancy or ownership of a section.

ESTABLISHMENT OF THE SECTIONAL TTLE SCHEMES MANAGEMENT ADVISORY COUNCIL

The STSMA also establishes a sectional title schemes management Advisory Council.

The Advisory Council will be tasked with making recommendations and advising the Minister on the provisions of the STSMA, as well as keeping the implementation of the STSMA and the regulations under regular review. The Council will be made up of persons appointed by the Minister who have skills, knowledge and experience in the management of schemes.

SECTIONAL TITLE SCHEME FINANCIALS

The body corporate is obliged to have the scheme’s financials audited each year. In terms of CSOSA the audited financials must be submitted to the chief ombud within 4 months of the end of the financial year.

CONCLUSION

Whilst sellers and purchasers are in general familiar with the concept of sectional title property, the sale and purchase of a sectional title unit can still present various issues. Proper preparation and a good understanding of sectional title is necessary. Knowledge of the Sectional Titles Schemes Management Act which aims to provide for the establishment of body corporates to regulate and manage sections and common property in sectional schemes, to ensure application of rules applicable and to establish the Sectional Titles Schemes Advisory Council is essential.

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