24 Oct 2016

For All Members of Community Schemes: The New Sectional Titles and Community Schemes Ombud Legislation

by David Warmback, Partner, Durban,

What is sometimes referred to as the Third Generation sectional title legislation finally commenced on 7 October 2016, with the long awaited publication of the proclamation relating to the Sectional Title Schemes Management Regulations.

Sectional title legislation was introduced to South Africa through the 1971 Sectional Titles Act when, for the first time, our law recognized the legal concept of ownership of a part of a building above ground level.  The 1986 Sectional Titles Act replaced the 1971 Act, and has had a number of amendments since it was introduced.

The Sectional Title Schemes Management Act, 8 of 2011 (“STMA”) and the Community Schemes Ombud Service Act, 9 of 2011 (“CSOSA”), were promulgated in 2011, although both pieces of legislation have only come into effect with the publication of the aforementioned sectional titles regulation, as well as two regulations relating to the Community Schemes Ombud Service.

Essentially the new STMA deals with the management aspects of sectional title schemes that have now been extracted from the 1986 Sectional Titles Act, leaving that Act dealing mainly with the technical registration and survey provisions of sectional title, with some minor changes.

An important aspect of the CSOSA is the establishment of an ombud service, the functions of which include providing a dispute resolution service, training for conciliators, adjudicators and other employees of the service, monitoring and controlling the quality of all sectional title and other scheme governance documentation, and promoting good governance of community schemes.  The ombud service is financed by a government contribution, but is intended to become financially self-sufficient, primarily through a compulsory levy on all community schemes in the country, as well as fees to be paid by persons who use the dispute resolution service of the ombud.

Community schemes, as defined in the CSOSA, include not only sectional title developments, but also share block schemes, home or property owners’ associations, housing schemes for retired persons and housing co-operatives.   Human rights lawyer, Temba Mthethwa has been appointed as the new Ombud, and it is anticipated that the ombud’s office will have a staff compliment of between 200 and 250, with offices in each Province.

Another important function of the ombud service relates to the maintenance of body corporate rules for sectional title schemes.  Substituted, added to, amended or repealed management and conduct rules are currently lodged in the various deeds offices, although the registrars are not involved in the enforcement or application of scheme rules.  The ombud service will be responsible to ensure that rules comply with the requirements of the STMA and that they will be reasonable and apply equally to all owners of units.  Within 10 days after passing a resolution amending the scheme’s rules, the developer or body corporate must lodge with the chief Ombud, notification in a prescribed form of such substitution, addition, amendment or repeal of a rule.

All community schemes are required to register with the ombud service, and then submit governance documentation to that service by 6 January 2017.  From 6 January 2017, a levy must be paid quarterly to the ombud service equal to 2% of the amount by which the monthly levy due by an owner exceeds R500,00, subject to a maximum of R40,00 per unit.

Importantly, every community scheme is now obliged to obtain fidelity insurance and insure against the risk of loss of money belonging to the scheme, sustained as a result of any act of fraud or dishonesty committed by any person.

The Sectional Title Schemes Management Regulations provide for a new set of management and conduct rules prescribed in terms of the STMA.  Some of the more important provisions of the new management rules include the following:

  • Changes to the quorum requirements for business transacted at any general meeting.
  • A person may not act as a proxy for more than 2 members of the body corporate.
  • A body corporate or trustees must prepare a written maintenance, repair and replacement plan for the common property, setting out a number of items including major capital items expected to require maintenance, repair and replacement within the next 10 years, the estimated cost of such maintenance, repair and replacement and the expected life of those items.
  • An administrative fund must be used to fund the operating expenses of the body corporate for a particular financial year and a reserve fund must be used for the implementation of the maintenance, repair and replacement plan of the body corporate.
  • An annual contribution to the reserve fund for the maintenance, repair or replacement of each of the major capital items must be determined in accordance with a prescribed formula.
  • The body corporate must obtain a replacement valuation of all buildings and improvements that it must insure at least every 3 years, and present such replacement valuation to the AGM.

Members of community schemes are advised to familiarize themselves as soon as possible with the latest amendments to the sectional title legislation and the new CSOSA and regulations.  Members wishing to resolve disputes in community schemes will need to carefully study the process provided in the ombud service to have such disputes adjudicated.