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Demand for sectional title residential properties remains fairly buoyant, appealing as they do to a wide cross-section of the community. At one end of the spectrum are young people, often newlyweds starting out in life, and at the other elderly couples downscaling from the family home and seeking lower running costs coupled with comfort and security.
Then there is the parental group, who invest in
a sectional title block to provide their children with
accommodation during their university studies,
while keeping an eye on potential capital returns.
Of course, not all sectional title properties are
small, relatively inexpensive apartments. There
are townhouse developments and, in the luxury
market, properties can cost as much as R50 million,
PGP’s national sales executive John Herbst points
out. Herbst adds that the popularity of this type of
property is illustrated by the fact that sectional title
sales constitute a high percentage of all residential
units sold in Johannesburg.
Owners appreciate the security and
convenience offered; many have access control
and the apartment blocks are often situated within
fenced communities offering amenities such as
clubhouses, restaurants, swimming pools, tennis
courts and other attractions. They are ideal for the
”lock up and go”adherent.
“Many sectional title developments offer sound
value for money and a well run complex can offer a
sound return on investment over the long term,” Herbst
claims. And that’s the key to purchasing a unit - one
which is well run and properly managed!
There is no need to be nervous of a sectional
title purchase. South African legislation is
internationally recognised. First promulgated in
1971 it is today very well established. It was drafted
in line with international precedents, specifically
that of New South Wales. New legislation has
recently been drawn up, says attorney Maryna
Botha of Smith Tabata Buchanan Boyes, in terms
of which:
• Theschememanagementprovisionshavebeen
removed from the current Sectional Title Act and
are contained in a new Sectional Title Schemes
Management Act 8 of 2011.
• The Community Schemes Ombud ServiceAct
9 of 2011 establishes an Ombud Service for the
resolution of disputes in all community schemes
(including schemes for retired persons).
Both Acts have been assented to, adds Maryna,
but neither are yet in operation, although this is
expected by the second half of this year.
Prior to the introduction of sectional
title schemes, non-full title properties such
as apartments were administered under the
Shareblock Control Act.“ This was part of the
Companies Act,” recalls Mike Morey, managing
director of PGP’s Property Management Services,
which manages some 135 schemes encompassing
5 500 units. “Shareblock schemes have a board
of directors as opposed to a body corporate; they
still exist but they have become much less popular.
They are something of a dying breed and a number
are going through the legal process of converting
to sectional title.”
Most, if not all, communal building
developments (apartment blocks etc) are governed
by the Sectional Title Act. Free-standing units
in developments are commonly registered by
the developer as Home Owners’ Associations
either established in terms of Land Use Planning
Ordinance with a board of trustees, or registered
as non-profit companies in terms of the Companies
Act with a board of directors. An important
difference from a buyer’s perspective is in terms
of restrictions. ie. in both cases owners pay levies
for the upkeep of common areas etc, but owners
in a sectional title scheme are restricted under the
prescribed and registered rules administered by the
body corporate in what they may do (alterations,
improvements, keeping pets, gardens and so on).
Managing agents, such as PGP’s Property
Management Services, are appointed by Home
Owners’ Associations and by sectional title
scheme’s trustees as set up by the body corporate.
Together with trustees or directors they help set
up a budget which dictates levies. These have to
be approved at an annual general meeting. In
terms of an HOA, for instance, resolutions must be
INTELLECTUAL PROPERTY July 2012 9
SECTIONAL TITLE
Sectional Title
Nature of right Proof of owner/holder’s rights to the property
What can the owner sell, and how are the rights transferred?
Can the owner / holder’s rights be mortgaged?
FreeholdOwner has full ownership of the property (erf, farm)
Title deed, registered in deeds officeOwner sells the property and the transaction must be registered in the deeds office
Yes, existence of mortgage bond is endorsed against title deed of the property
Sectional title
Owner has full ownership of the prop-erty (Unit in sectional title scheme) together with an undivided share in the common property areas
Title deed, registered in deeds office Owner sells the unit and share in com-mon property and the transaction must be registered in deeds office
Yes, existence of mortgage bond is endorsed against title deed of the property
Shareblock
The holder of the shareblock does not own the property, the share-block company does. The holder owns shares (grouped into a ‘block of shares’) in a company that is a shareblock company
Share certificate and use agreement. The latter is usually entered into with the shareholder and grants the shareholder rights of use in respect of a certain unit in a scheme (such as a block of flats) that is owned by the company
Owner sells the shares and rights under the use agreement; rights are transferred by means of cession of share and loan account and cession of rights in terms of use of agreement
No, the holder of the shares and use agreement cannot mortgage them - only immovable property can be mortgaged. The company itself may mortgage the property
passed by 75% of members present who are eligible
to vote (paid up).
Some basic differences between full title,
sectional title and shareblock. (See graph on page 9)
When considering buying into a sectional title
scheme there are certain issues to be aware of
as well as the normal contract terms etc. Always
check these with the estate agent and attorney,
before signing an offer to purchase. For example,
ask to see the body corporate accounts and
budgets. You might discover that a special levy is
to be raised for a project planned in future. Ensure
that insurance is in order and paid up to date. Ask
your attorney to find out whether the developer
has registered rights of extension.
Levies are raised as per the budget approved
by the body corporate and are divided among the
owners in terms of their “participation” quota
which expresses the relationship of floor space of
a unit to total floor space of all the sections in the
scheme. What happens if an owner doesn’t keep
up his/her levy payment? According to Maryna
Botha: “An owner may not be evicted as a result.
However, it is a breach of one’s statutory duty
and the body corporate may approach a court for
appropriate relief.”
Furthermore, pleading that one can no longer
afford to pay levies is not a legal defence, adds
Mike Morey.
Rules of conduct are often the cause of
disputes – especially if you buy without knowing
their ins and outs. These cover a wide range of do’s
and don’ts: A friend of mine considered buying a
garden flat until he read the nine pages of rules
and limitations. These were so draconian that on
walking out he asked the hapless estate agent;
“Do they have Lights Out and Reveille?”
The body corporate can change conduct rules by
drafting a special resolution and inviting all owners
to a general meeting at which they will vote on the
proposed amendments. When the Ombudsman is
in place, one will be able to approach the Ombud
to change a rule deemed unreasonable.
Obviously the trustees appointed by the body
corporate call the shots in terms of house rules,
conduct rules and so on; so should one make a
point of being appointed a trustee? “I generally
encourage anyone to become a trustee”, says
Morey. This can be particularly important if one
is buying into a new development. Botha points
out that the body corporate legally comes into
existence as soon as the first unit in the scheme
has been transferred. So, get in quick appears to
be the rule…
Sectional TitleSECTIONAL TITLE
INTELLECTUAL PROPERTY July 201210
Retirement homes are a growing sector of
the “communal” residential market and pose
many questions for older people buying into these
developments. Such schemes typically include a full
spectrum of lifestyle facilities, security and frail care
services with or without an option of assisted living.
The Housing Development Schemes for Retired
Persons Act 65 1988 was introduced to regulate
these schemes and to afford buyers a degree of
protection relating to both the development and
the ongoing management of such a scheme.
Frequently asked questions about retirement
homes: Answers by Maryna Botha.
q. I bought a flat/house in a retirement
complex, will I get a title deed?
A. It is of the utmost importance to scrutinize
the form of ownership you acquire; your legal
rights and obligations vary greatly with the
different types of schemes. Retirement villages (or
schemes) can be structured as follows:
Sectional Title Ownership will give you
outright ownership of the unit. Registration of
ownership of the unit in your name must be
processed at the Deeds Office and you will receive
a title deed to the property (if mortgaged the bank
will hold this);
Share Block Ownership. Each unit is allotted
a number of shares in the company. These give you
the right to use the residence and the complex’s
facilities but you do not own the dwelling. You
will receive share certificates but not a title deed,
Life Rights. This gives you the right to occupy
a particular dwelling for the rest of your life, but
not ownership. You will not receive a title deed, nor
is the process registered at the Deeds Office. Your
rights are governed by the Housing Development
Scheme for Retired Persons Act.
Full Title Ownership (not typically found in
retirement schemes). The property is registered in
your name and you are liable for such services as
rates, water electricity, security and upkeep levies
which may apply. A homeowners’ association will
be established to maintain common areas in the
village and provide security and other services.
q. I bought so-called Life Rights. What
exactly do I own? What are my rights?
A. You purchase the right to occupy a unit in
the scheme for as long as you live. What happens
upon death is regulated by the contract of sale
between the contractor and the purchaser (so have
SECTIONAL TITLE
INTELLECTUAL PROPERTY July 2012 11
Sectional Title
INTELLECTUAL PROPERTY July 201212
this scrutinized!). Life rights, in other words, link
occupancy rights to the life span of the occupier.
The Act determines that the holder of a life
right has, for all intents and purposes, the same
rights as those conferred upon a lessee in terms of
a registered long lease. Practically this means that
the holder has a real right to occupy the property
for the full term of the interest. Therefore, should
the land/development be sold the holder of the life
right may remain in occupation.
To further bolster the rights of persons
purchasing life rights in retirement schemes, the
Act determines that the real right of the holder will
rank in priority over any other right, whether or not
the right is registered over the property – or when
this right was registered. In other words, the right
of the holder will rank above that of a mortgage
bond holder, holder of a servitude and so forth.
q. Can my spouse stay on in the scheme
when I die?
A. It depends on the form of ownership and
marital status. If you were married in community
of property and the scheme is based on sectional
title, freehold or shareblock, your spouse can stay
on because he or she is legally the joint owner. If
married in community of property and the scheme
is based on Life Rights, it will depend on the terms
of the agreement entered into with the developer.
In most instances this sort of agreement usually
states that the spouse may stay on.
It is advisable that both spouses name
each other as heir of each other’s ownership or
shareholding in the retirement scheme.
If you were married out of community of
property and bought the property or shares jointly
(whether sectional title, freehold or shareblock)
then the surviving spouse will still own half of the
property/shares. It is, however, necessary to ensure
by way of a will that the half share of the deceased
devolves to the survivor.
Where a couple are married out of community
of property and the scheme is based on life rights,
it will again depend on the terms of the agreement
entered into with the developer. If in this case
the ownership or shareholding was in the name
of the deceased only, the surviving spouse must
acquire the ownership/shares from the deceased’s
estate in order to remain living in the property. It
should ideally be bequeathed to the survivor in the
deceased’s will.
Note: The above are only a few of the main considerations. It is
crucial to engage the services of an attorney prior to entering
into any contract.
q. At what age can I buy into a
retirement scheme?
A. Anyone can invest in a retirement scheme,
regardless of age. But, according to the Act, only
persons of 50 years of age and older can reside in
such a scheme – unless all the owners of housing
interests in the scheme consent to the contrary.
So it’s possible for children of retired parents
to purchase an apartment or life right for their
parents in which to live. NB. Checked and approved by: Mike Morey, MD Pam Golding
Property with reference to Property Management Services,
Zerlinda van der Merwe, attorney, Pam Golding Management
Services. Maryna Botha, attorney, STBB
Sectional TitleSECTIONAL TITLE