Two new pieces of legislation came into effect on 7 October 2016 that affect the property industry in South Africa. These enactments flow from the Sectional Titles Act 95 of 1986, and are namely the Sectional Titles Schemes Management Act 8 of 2011 (STSMA) and the Community Schemes Ombud Services Act 9 of 2011 (CSOSA).
The STSMA will mainly provide body corporates with assistance in the management and regulation of sectional titles schemes and applying the rules, as well as providing for the establishment of a Sectional Titles Schemes Management Advisory Council. The current Sectional Titles Act will keep its focus on the survey and registration of sectional title schemes.
Although the STSMA has a number of interesting implications, this article seeks to extract and explore just a few of the developments pertaining to STSMA which will have a profound impact. The impact of CSOSA has been addressed in another article.
In terms of Section 3(1) of the STSMA, the body corporate must now establish a reserve fund and manage it in order to cover future maintenance and repair costs of the common property. This is something which was not provided for in any statutory regulation in the past. Before these enactments, the trustees only had to budget and provide for reasonable future contingencies and expenses.
The regulations to the STSMA have gone a step further and provided a specific formula to calculate the payments required towards forming this reserve fund which are as follows:
The minimum amount of the annual contribution to the reserve fund for a financial year being budgeted for, (other than the financial year budgeted for at the first general meeting) must be determined as follows:
- If the amount of money in the reserve fund at the end of the previous financial year is less than 25% of the total contributions to the administrative fund for that previous financial year, the budgeted contribution to the reserve fund must be at least 15% of the total budgeted contribution to the administrative fund;
- if the amount of money in 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 previous financial year, there is no minimum contribution to the reserve fund; and
- 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 previous 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 financial year being budgeted for.
The requirement of a reserve fund is a positive step in ensuring that body corporates budget and plan for the maintenance of sectional schemes appropriately in order to ensure the avoidance of harsh (and often unaffordable) special levies and ensuring that sectional schemes are well kept and maintained.
A further positive requirement is set out in Section 22 of the regulations to the STSMA which requires a body corporate to prepare a written maintenance, repair and replacement plan for the common property.
This will not only allow prospective new owners in sectional schemes to be able to evaluate the state of repair of the scheme, but will also (in conjunction with the reserve fund which needs to be established) allow them to budget their levy contributions accordingly.
This all points towards far better physical management of sectional schemes by enforcing proper maintenance planning and budgeting.
Again, the regulations are quite specific when it comes to what is required to be contained in that plan (to avoid those wishing to merely pay lip service to the new STSMA) and amongst other points, it says that the plan must include the following:
(a) “..the major capital items expected to require maintenance, repair and replacement within the next 10 years;
(b) the present condition or state of repair of those items;
(c) the time when those items or components of those items will need to be maintained, repaired or replaced;
(d) the estimated cost of the maintenance, repair and replacement of those items or components;
(e) the expected life of those items or components once maintained, repaired or replaced; and
(f) any other information the body corporate considers relevant.”
General meetings, proxies and voting
An interesting feature of the STSMA relates to the establishment of rules which govern general meetings, proxies and voting. Prior to the STSMA these matters were not dealt with by the Sectional Title Act itself, but rather Annexure 8 to the prescribed regulations in terms of that Act. Annexure 8 is what is known as the prescribed management rules which were generally substituted as the management rules for most sectional title schemes.
The STSMA now deals with these rules itself and has some noteworthy differences to the ‘old’ prescribed management rules.
One such difference relates to proxy votes at body corporate meetings. In terms of Section 6 (5) of the STSMA a member of the body corporate may be represented at a body corporate meeting by a proxy, provided that the person representing them may not act as proxy for more than two members.
It is common for Chairpersons or the appointed managing agents (especially in larger sectional schemes) to hold proxies on behalf of numerous members of the body corporate. The limitations on the number of proxies that one person can now hold will force more members (alternatively more proxies) to attend the meetings of the body corporate, failing which you may find that the required quorums for meetings are not achieved.
A further change in voting is brought about in terms of Section 6 (7) of the STSMA. Prior to the enactment of the STSMA a member had the number of votes according to the number of units held by that member (when voting was done in terms of number). Section 6 (7) states that each member is only entitled to one vote, and it seems that means “regardless of the number of sections he owns in the scheme”. Savvy owners who therefore hold more than one unit in a scheme may therefore want to insist that voting be done according to value (in which case voting weight will be determined according to the participation quota held by each member).
It is also worth noting that in terms of Section 10 (5) of the STSMA, any amendment, repeal or substitution of rules must now be approved by the newly formed Chief Ombud. Any such amendment, repeal or substitution will only take effect once approved by the Chief Ombud. This signals a warning to developers of old that usually amend these rules in their favour when opening sectional schemes (often to the detriment of subsequent owners).
A new procedure has been set out in in rule 25 (2) to the Regulations prescribed in terms of the STSMA. The Regulations state that if any member owes money, then the body corporate must send a final notice to the member, which must state:
(a) that the member has an obligation to pay the overdue contributions and charges and any applicable interest immediately; and
(b) if applicable-
(i) the interest that is payable in respect of the overdue contributions and charges at the date of the final notice; and
(ii) the amount of interest that will accrue daily until the payment of the overdue contributions and charges; and
(c) that the body corporate intends to take action to recover the amount due if the overdue contributions and charges and interest owing are not paid within 14 days after the date the final notice is given.
An interesting point worth noting is that the act then provides for the body corporate to approach the newly established Chief Ombud for relief should the member still not make payment. It is not clear whether this would then preclude a body corporate from approaching the courts directly for relief in the event that a member does not make his levy payments, but it would seem that a direct approach to the courts would still be possible.
Abrahams and Gross has already submitted our first dispute for adjudication to the Chief Ombud and can confirm that we have received excellent feedback and response times to our applications. We are of the opinion that this office will add great value to the property industry and will keep our clients apprised of any developments.
Should you have any enquiries about either STSMA or CSOSA, please don’t hesitate to contact our attorneys who are experts in Conveyancing and Property Law.
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