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THE ADVENT OF THE THIRD GENERATION SECTIONAL TITLE LEGISLATION – IMPLICATIONS FOR OWNERS

Background to Sectional Title Property:

The South Africa legislature has recognised the need for a regulatory regime governing the vertical ownership of property. Prior to 1971, our law only recognised the ownership of land per the Roman Dutch principles of yore measured horizontally; however, with the advent of the Sectional Titles Act 66 of 1971, being the First Generation of Sectional Title Legislation, the concept of vertical ownership was accepted into our law.

In 1986 the Second Generation of Section Title legislation came into effect in the form of the Section Titles Act 85 of 1986 (Hereinafter referred to as the “1986 Act”). The ST Act ossified the notion of Sectional Title, creating a new composite thing, being a sectional title unit consisting of a section of a building and an undivided co-ownership share in the common parts of the building and land (Mostert, H et al The Principles of the Law of Property in South Africa, 100-101).

The Third Generation of legislative framework, has recently come into operation on or about 7 October 2016, and comprises of two key pieces of legislation being the Sectional Title Schemes Management Act 8 of 2011 (hereinafter referred to as the “STSM Act”), as well as the Community Scheme Ombud Service Act 9 of 2011 (hereinafter referred to as the “CSOS Act”).

The Third Generation Sectional Title Legislation:

Both the STSM and CSOS Acts were assented to in June of 2011, the regulations to the both Acts have only been promulgated and enforced on 7 October 2016 (respectively per Government Notices R1231 and R1233 of 2016 in Government Gazette 40335 of 7 October 2016).

The purpose of this article is merely to unpackage the salient aspects of the Legislation and the regulations thereto, that may have an impact on owners.

Unpackaging the Salient Items of the STSM Act and Regulations:

While the STSM Act is intended to deal with the management aspects of Sectional Title Schemes, the consequences of the regulations may have a significant impact on Owners, specifically with respect to your levy contribution and representation by proxy at the Body Corporate and Trustees meetings.

Establishment of a Reserve Fund:

The STSM Act now mandates the establishment of a separate Reserve Fund for future maintenance and repairs to the common property, in addition to an Administrative Fund (established to cover the reasonable operating costs of the Body Corporate). In terms of Regulation 2 of the STSM Act the minimum contribution of owners to the Reserve Fund (per section 3(1)(b) of the STSM Act), is to be calculated as follows:

(a)if at the end of the previous financial year the money held in the reserve fund is less than 25% of the total contributions to the administrative fund for that same financial year, then the contribution to the reserve fund must be at least 15% of the total budgeted contribution to the administrative fund;

(b)if the reserve fund at the end of the previous financial year is equal to or greater than 100% of the total contributions to the administrative fund for that same financial year, there is no minimum contribution to the reserve fund; and

(c)if the amount of money in the reserve fund at the end of the previous financial year is more than 25% but less than 100% of the total contributions to the administrative fund for that same financial year, 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 next financial year.

Impact on owners:

The reserve fund at a minimum needs to be maintained at 25% of the Administrative Fund at a minimum, since these funds cannot appear in a vacuum, owners are likely to see an increase in their monthly levy contribution in order to facilitate the Body Corporates’ establishment of the Reserve Fund.

Proxy Voting Restrictions:

Section 6 of the STSM Act governs the meeting of the Body Corporate, and subsection 6(5) allows for members to be represented by proxy at such meeting, provided that the proxy does not represent more than two members.

Impact on Owners:

Owners would need to ensure that proxies that they have secured to attend meetings in their stead do not represent more than one other owner in their sectional title scheme.

The Dispute Resolution Process of the Community Scheme Ombudsman:

The creation of the Community Scheme Ombud is a recent development affording a new dispute resolution mechanism for owners and persons affected by a dispute within the ambit of the.

In terms of the new legislation any person may make an application to the Service if such person is a party to or is affected materially by a dispute. Chapter 3 of CSOS Act delineates the applicable process to be followed in referring a dispute to the Ombud namely:

  1. Per section 38 – Delineates that the prescribed form, along with the prescribed application fee is to be lodged together with the statement of relief sought and grounds therefor.
  2. Per section 39 – delineates the specific prayers for relief to be claimed in any application to the Ombud. These prayers include issues in respect of finances, behaviour, scheme governance, issues relating to meetings and/or management services, issues relating to private viz common areas, as well as other general issues.
  3. Per section 40 – provides for the Applicant to tender additional evidence and/or further information, at the Ombuds discretion.
  4. Per section 41 – certain time limits are prescribed for orders declaring any decision of an association or an executive committee to be void, and may not be made later than 60 days after such a decision has been taken.
  5. Per section 43 – After the complaint has been lodged, a notice will be given to all interested parties to make written submissions in respect of the complaint.
  6. Per section 44 – The information received by the interested parties will then be provided to the Applicant who may confirm whether or not they wish to proceed.
  7. Per section 47 – if the Ombud considers that there are reasonable prospects of a negotiated settlement of the disputes set out in the application, the Ombud must refer the matter to conciliation.
  8. Per Section 48 – If conciliation fails, the Ombud must refer the dispute to an adjudicator together with any submissions and responses thereto and the relevant fee must be paid.

Note that the Act attempts to obviate the need for legal representation, the caveat (per section 52) being that unless, the adjudicator and all parties consent, or the relative complexity and importance of the dispute and the issues of law therein require the need for representation.

It is important to note further that an order of the adjudicator may be made an Order of either the Magistrates’ Court or the High Court, depending on the jurisdiction of the relief claimed, and is to be enforced as such.

Finally in terms of section 57 any party affected by the Order and who is dissatisfied by the adjudicator’s Order, may appeal to the High Court, but only on a question of law. Which appeal must be lodged within thirty (30) days from date of delivery of the Order.

Prepared by:
Ashley Adriaans |Director | Dispute Resolution: Litigation & Arbitration
Kshethra Naidoo |Candidate Attorney

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)