How to … buy a sec­tional ti­tle prop­erty

When you buy a home, se­cu­rity and cost are prob­a­bly two of your fore­most con­cerns. One way to own a home at a lower cost than buy­ing free­hold, and with the added ben­e­fit of se­cu­rity, is to buy sec­tional ti­tle. This week, as part of our se­ries on how to ma

Weekend Argus (Saturday Edition) - - PERSONAL FINANCE -

When you buy into a sec­tional ti­tle scheme, which is usu­ally a block of flats or a de­vel­op­ment of town­houses or clus­ter homes, you be­come the owner of a unit (for ex­am­ple, a flat), which is a sec­tion of the scheme, and you have an un­di­vided share in the com­mon prop­erty you co-own with other own­ers.

A ma­jor dif­fer­ence be­tween a sec­tional ti­tle and free­hold prop­erty is that in a sec­tional ti­tle scheme, al­though you are the owner of your unit, the scheme is gov­erned by a body cor­po­rate, made up of all the own­ers in the scheme. And the body cor­po­rate has the power to im­pose re­stric­tions on what you can and can­not do on your prop­erty.

You may also be al­lo­cated exclusive use of a part or parts of the com­mon prop­erty (see “Ex­clu­siveuse ar­eas: your rights”).

Sec­tional ti­tle own­er­ship is gov­erned by the Sec­tional Ti­tles Act, which sets out how sec­tional ti­tle schemes must be run.

The sec­tion you own is de­fined as the area bound by the mid­dle of the out­side or di­vid­ing walls, the floor and the ceil­ing. In ad­di­tion, your un­di­vided share in the com­mon prop­erty is ap­por­tioned ac­cord­ing to the par­tic­i­pa­tion quota of your sec­tion.

The par­tic­i­pa­tion quota is the pro­por­tion of the floor area of your sec­tion com­pared to the to­tal floor area of all sec­tions in the scheme and is ex­pressed as a per­cent­age. The par­tic­i­pa­tion quota al­lo­cated to your sec­tion also de­ter mines your li­a­bil­ity for a por­tion of the scheme’s com­mu­nal ex­penses.

For ex­am­ple, if your par­tic­i­pa­tion quota is 10 per­cent, you tech­ni­cally own 10 per­cent of the com­mon prop­erty in un­di­vided shares (that is, not ex­clu­sively). You are also li­able for 10 per­cent of the scheme’s com­mu­nal ex­penses.

BODY COR­PO­RATE

The body cor­po­rate is re­spon­si­ble for the scheme’s ad­min­is­tra­tion and for main­te­nance of the com­mon prop­erty. How­ever, you are re­spon­si­ble for any re­pairs and main­te­nance costs for your sec­tion (such as a burst geyser), as well as for those ar­eas that are des­ig­nated for your exclusive use.

You au­to­mat­i­cally be­come a mem­ber of the body cor­po­rate when you buy a sec­tional ti­tle unit, and you can nom­i­nate your­self for elec­tion to the board of trustees when elec­tions come up.

The trustees are re­spon­si­ble for car­ry­ing out the func­tions and du­ties of the body cor­po­rate, such as manag­ing the scheme and tak­ing care of its fi­nances. Of­ten, a body cor­po­rate will ap­point a manag­ing agent to help it with the day-to-day run­ning of the scheme.

The manag­ing agent’s ser­vices may in­clude: Col­lect­ing the monthly levies; Pay­ing the scheme’s in­sur­ance pre­mi­ums;

Ar­rang­ing body cor­po­rate meet­ings and no­ti­fy­ing own­ers;

En­sur­ing that own­ers and the body cor­po­rate com­ply with the Sec­tional Ti­tles Act; and

En­sur­ing that own­ers and ten­ants com­ply with the body cor­po­rate rules.

The manag­ing agent should also pro­vide prospec­tive buy­ers with a copy of the body cor­po­rate rules.

Once a year, schemes have to hold an an­nual gen­eral meet­ing, at which the scheme’s an­nual fi­nan­cial state­ments are pre­sented, de­ci­sions are taken for the year ahead and trustees are elected.

Ac­cord­ing to the Sec­tional Ti­tles Act, there are dif­fer­ent lev­els of au­tho­ri­sa­tion re­quired for the ap­proval of var­i­ous mat­ters. The lev­els are as fol­lows:

Mat­ters the trustees can make de­ci­sions on. Th­ese in­clude whether or not to raise a spe­cial levy;

Mat­ters re­quir­ing an or­di­nary res­o­lu­tion of a gen­eral meet­ing of the own­ers or their rep­re­sen­ta­tives – for ex­am­ple, the ap­proval of the bud­get. An or­di­nary res­o­lu­tion is passed by the or­di­nary ma­jor­ity of per­sons re­quired to vote at a meet­ing, that is, 51 per­cent or more;

Mat­ters re­quir­ing a spe­cial res­o­lu­tion of the own­ers or their rep­re­sen­ta­tives – for ex­am­ple, the amend­ment of a con­duct rule. A spe­cial res­o­lu­tion re­quires that 75 per­cent of all those present or rep­re­sented in both num­ber (on a show of hands) and value (in ac­cor­dance with the par­tic­i­pa­tion quo­tas of those present or rep­re­sented) must vote in favour of the res­o­lu­tion;

Mat­ters that re­quire a unan­i­mous res­o­lu­tion – for ex­am­ple, con­fer­ring reg­is­tered exclusive-use rights on an owner. Every­one present at the meet­ing must be in favour of such a res­o­lu­tion and 80 per­cent of the own­ers cal­cu­lated in both num­ber and value must be present or rep­re­sented;

Mat­ters that re­quire the writ­ten con­sent of ev­ery owner – for ex­am­ple, a de­ci­sion to pur­chase land to ex­tend the com­mon prop­erty.

RULES OF THE SCHEME

When you buy a sec­tional ti­tle prop­erty, the es­tate agent or seller should give you a copy of the body corpo- rate’s rules. If they do not, you should be able to ob­tain a copy from the lo­cal Deeds Of­fice.

The body cor­po­rate rules are di­vided into man­age­ment rules and con­duct rules. Man­age­ment rules deal with is­sues such as the elec­tion of trustees, when they can be dis­qual­i­fied, their pow­ers and du­ties, and what pro­ce­dures should be fol­lowed at meet­ings of the body cor­po­rate. While there are pre­scribed man­age­ment rules set out in the Sec­tional Ti­tles Act, bodies cor­po­rate can in­clude rules which are spe­cific to that sec­tional ti­tle scheme.

Con­duct rules cover what you can and can­not do, such as not wash­ing your car on the premises or not car­ry­ing out ren­o­va­tions at spec­i­fied times, such as Sun­days.

When you buy into a sec­tional ti­tle de­vel­op­ment, you have to:

Within rea­son, al­low the body cor­po­rate to have ac­cess to your sec­tion when nec­es­sary;

Carry out any work on your sec­tion re­quired by the lo­cal au­thor­ity;

Keep your sec­tion in a state of good re­pair, and keep any area of com­mon prop­erty al­lo­cated for your exclusive use in a neat and clean con­di­tion;

In­form the body cor­po­rate of a change in own­er­ship of your unit; and

Use your sec­tion only for the pur­pose ex­pressly or tac­itly in­tended by the sec­tional plan (for ex­am­ple, you may not rent out a garage for ac­com­mo­da­tion).

FI­NAN­CIAL STA­BIL­ITY OF THE SCHEME

Un­like a free­hold prop­erty, where you have to pay your own in­sur­ance, elec­tric­ity and wa­ter, when you buy a sec­tional ti­tle prop­erty, some of th­ese costs will be cov­ered by a monthly levy that you pay to the body cor­po­rate. Among other things, the levy cov­ers the cost of your home­owner’s in­sur­ance pre­mi­ums, as well as the costs of run­ning and main­tain­ing the com­mon prop­erty. As of last year, a sec­tional ti­tle owner is re­spon­si­ble for pay­ing the rates on his or her unit di­rectly to the lo­cal au­thor­ity.

Not every­one in a sec­tional ti­tle scheme pays the same levy. The levy you pay de­pends on the value of your par­tic­i­pa­tion quota, and it is cal­cu­lated by tak­ing the an­nual bud­get of the com­plex, di­vid­ing it by 12 to get a monthly fig­ure and mul­ti­ply­ing the re­sult by your par­tic­i­pa­tion quota.

Bear in mind that your levy is payable over and above your monthly bond re­pay­ments and rates and is likely to in­crease each year.

You should ask the manag­ing agent, es­tate agent or seller if the body cor­po­rate has im­posed, or is likely to im­pose, a spe­cial levy.

A spe­cial levy is an ad­di­tional levy (usu­ally for a higher amount than the reg­u­lar levy) that may be raised to cover a large or once-off ex­pense that can­not be met through or­di­nary levies or from the scheme’s re­serves – for ex­am­ple, for retil­ing the roof of the apart­ment block.

If a spe­cial levy has or will be im­posed over a pe­riod strad­dling the trans­fer, you can in­clude a clause in the of­fer to pur­chase that states who (the buyer or the seller) will be re­spon­si­ble for pay­ing it.

For more on sec­tional ti­tle liv­ing, see our web­site, www.pers­fin.co.za, for ar­ti­cles by Gra­ham Pad­dock and Mike Ad­di­son, which orig­i­nally ap­peared in Per­sonal Fi­nance mag­a­zine.

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