Sectional Titles Schemes Management Act 8 of 2011

With the introduction of the Community Scheme Ombud Service (CSOS) the Sectional Title Act has been given a makeover particularly with regard to management and conduct rules. A lot of the grey areas regarding 'who is responsible for what',  have been clarified. Unfortunately there is a lot to get through, but it's important for owners in sectional title to gain an understanding of the changes especially in the new Sectional Title Scheme Management Act. The article below from Paddocks Press goes some way in unpacking the changes.

By Sivannah Padayachee

The Sectional Titles Schemes Management (STSM) Act 8 of 2011 was gazetted and signed by the President in June 2011 and this Act will come into operation on a date fixed by the President by publication in the Gazette.

The purpose of the STSM Act is to provide for the establishment of bodies corporate to manage and regulate sections and common property in sectional titles schemes and, for that purpose, to apply rules applicable to such schemes and a sectional titles schemes management advisory council.

The STSM Act does not repeal the Sectional Titles Act (“STA”) 95 of 1986 (as amended) but certain provisions of the STA have been repealed and/or amended, with the enactment of STSM Act. Various interested parties have raised concerns over the interpretation of section 3(2) of the STSM Act, especially since the STSM Act, repeals Section 37 (2) of the STA.
Section 37(2) (new amendment) provides that: “Liability for contributions levied under any provision of subsection (1), save for special contributions contemplated by subsection (2A), accrues from the passing of a resolution to that effect by the trustees of the body corporate, and may be recovered by the body corporate by action in any court (including any magistrate’s court) of competent jurisdiction from the persons who were owners of units, holders of exclusive use areas and holders of real rights of extension at the time when such resolution was passed: Provided that upon the change of ownership of a unit, exclusive use areas and real rights of extension, the successor in title becomes liable for the pro rata payment of such contributions from the date of change of such ownership.”
Section 37(2) of the STA permits a body corporate to recover arrear levies from an owner by instituting legal proceedings in a Court, having jurisdiction. The question that is asked is “whether with the repealing of section 37(2) of the STA and the enactment of section 3(2) of the STSM Act, will result in a body corporate referring all levy defaulters to the office of the ombud to recover the arrear levies from the owner rather than Court?
In order to answer this question, the interpretation of Section 3 (2) of the STSM Act must be analyzed. This section provides as follows:-
“Liability for contributions levied under provision of subsection (1), save for special contributions contemplated by subsection (4), accrues from the passing of a resolution to that effect by the trustees of the body corporate, and may be recovered by the body corporate by an application to an ombud from the persons who were owners of units at the time when such resolution was passed: Provided that upon the change of ownership of a unit, the successor in title becomes liable for the pro rata payment of such contributions from the date of change of such ownership.”
The important words in the above section are the following: “….and may be recovered by the body corporate by an application to an ombud from the persons…”
Usually, in the interpretation of statutes, the word “may” is considered to be permissive rather than directory. The word “may” used in this Act (statute) provides the body corporate, in this instance, with a discretionary right to refer an owner’s liability for arrear levies to the relevant ombud’s office which will be established in terms of this Act. The word “may”, give the body corporate discretion either to use the ombud’s office or not.
It is a discretion which the body corporate may exercise in accordance with the relevant circumstances of each handover/levy defaulter.
The word ‘may’ in its natural meaning is permissive and imports a discretion, and must be construed as discretionary unless there is anything in the subject-matter to which it is applied, or in any other part of the statute, to show that it was meant to be imperative.
If, on the other hand, the Section 3 (2) of the STSM Act stated the following: “and shall be recovered by the body corporate…”, then with the use of the word “shall”, the body corporate would be under a duty to refer all levy defaulters to the ombud’s office, rather than the legal hand over route. The use of the word “shall” is peremptory and this would have meant that from the date of the supposed operation of this Act, any new levy defaulters would have to be referred to the relevant ombud’s office.
It may be presumed that the Legislature did not intend to exclude a body corporate’s right to recover arrear levies from a defaulting owner in a court of law and that the intention was to confer a right of recovery which would come into existence in the circumstances specified, and which may be pursued by action in Court or by application to an ombud.
Bodies Corporate will still retain its common law right to enforce its claim in any court of law and any actions already instituted against a defaulting owner for the recovery of arrear levies, can still be continued against the defaulting owner in that respective Court.
It is trite that courts of law and the legal process generally are open to all. Only in extreme and exceptional cases will a court or the legal process close its door to anyone who wishes to prosecute an action.
HOW DO YOU DECIDE WHETHER TO REFER A LEVY DEFAULTER TO COURT OR TO THE OFFICE OF THE OMBUD?
The Community Schemes Ombud Services (“CSOS”) Act 9 of 2011 was also published in the Gazette in June 2011 and will come into operation on a date fixed by the President by publication in the Gazette. The purpose of the CSOS Act is to provide a legal structure to monitor and control the administration of private and common areas in community schemes and to deal with the various disputes in these schemes by providing effective and affordable dispute resolution services in community schemes, including amongst others, sectional title schemes.
If a body corporate intends recovering arrear levies from an owner, and there is no dispute as to its determination then a body corporate can institute legal action in court to recover the arrear levies from the defaulting owner.
An example of there being no dispute [as given in Body Corporate of Greenacres v Greenacres Unit 17 CC and 1 other 2008 (3) 167 (SCA)], is when an owner ignores a demand for payment of levies or simply refuses, without justification, to pay them. This situation lends itself to there being no dispute and the Body Corporate is entitled to institute legal action in Court to recover its debts.
If, on the other hand, the levy amount is disputed because it has not been properly determined, and if this dispute is raised after the transmission of the levy statement or a letter of demand, then in situations like this, it may be preferable for the body corporate, to make application to the Ombud’s office.
A dispute relating to the recovery of levies or non-payment of levies must exist before any question of application to an ombud is necessary. Even though in terms of Section 39(e) of the CSOS Act, the ombud may make, “an order for the payment or re-payment of a contribution or any other amount”, the appropriate forum for undisputed levy collections, will be a Court of law, as opposed to the Community Ombud service.
It is also important to note that once the adjudicator (in terms of Section 48 of the CSOS Act), has investigated the dispute and made an Order, the adjudicator’s order for the payment of an amount of money such as levies from a defaulting owner, must in terms of section 56 of the CSOS Act, be enforceable as a judgment in a Magistrate’s Court or the High Court, having jurisdiction. This would involve the body corporate executing the Order in Court to successfully recover the payment of the levies.
Accordingly a body corporate that demands payment of levies is entitled to approach a competent Court to enforce its right to recover the levies alternatively the body corporate may make an application to an ombud to provide it with such legal assistance as it requires, and as stipulated in the provisions of the CSOS Act.
The full impact of the above Acts will only become known once the courts have judicially interpreted and tested the various provisions of the above Acts in the Courts to determine when exactly it is necessary to refer a levy defaulter to the ombud’s office or to a court of law.
Without any case law to guide the practical implications of the new Acts, there will be an element of speculation in advising on new legislation. This means that it may take some time before certainty is achieved as to precisely what needs to be done when an owner is in arrears with his levies, and when is it appropriate to refer the matter to Court, even if there is a dispute.
Article reference: Paddocks Press: Volume 7, Issue 5, Page 3

 

 Sivannah Padayachee (B.PROC LLB), Attorney and sole proprietor at Lomas-Walker Attorneys, Notaries and Conveyancers.

This article is published under the Creative Commons Attribution license. 

Rules restricting tenants in sectional title schemes

In today's post from Paddocks "Thinking inside the box" we look at the emotive issue of investors tenants in sectional title.

By Carryn Melissa Durham

There are two types of owners in sectional title schemes: those who reside in their units, and those who do not. The latter are investment owners who let their units out to tenants for rental income. There are various types of investment owners. It could be that a particular owner has various properties in various schemes, and rents the units out as his or her primary business activity for profit. It may also be that an owner has only one unit that is used to subsidise his or her income, or even that the owner is a retired person, that depends on the rental income. It is important that there be a sufficient market of rental property available, as not all persons are in a financial position to buy property.

I often hear that the tenants are the trouble-makers who breach the rules in sectional title schemes. It is true that the trustees must, on behalf of the body corporate, do all things reasonably necessary for the enforcement of the rules of the scheme. However, I am of the view that the body corporate should not discriminate against tenants and investment owners in the creation and enforcement of the rules.

The role of the trustees is to control, manage and administer the common property. The trustees should not unreasonably restrict or regulate the manner in which owners use their section. The trustees should not limit the proprietary rights of investment owners by restricting tenants’ rights too stringently in the rules. Here is an example to illustrate my point: an investment owner could be adversely affected if the scheme rules, in a scheme that is located in a beach town, restricts short-term letting of the sections. This would limit the rental pool of tenants that the investment owner could let the unit to, and make it difficult for investment owners to obtain the maximum rental for their section over the summer holidays.

Another example is that it would be discriminatory against tenant residents to have a rule that states that only owners may keep pets. Section 35(3) of the Sectional Titles Act 95 of 1986 (“the Act’) states that “any management or conduct rule made by a developer or a body corporate shall be reasonable, and shall apply equally to all owners of units put to substantially the same purpose”. This could be interpreted to mean that the rules only need to apply equally to owners, but I believe that in our South African constitutional context, it would be discriminatory to tenant residents to restrict them from keeping pets. Prescribed Conduct Rule 1 states that:
“(1) An owner or occupier of a section shall not, without the consent in writing of the trustees, which approval may not unreasonably be withheld, keep any animal, reptile or bird in a section or on the common property. (2) When granting such approval, the trustees may prescribe any reasonable condition. (3) The trustees may withdraw such approval in the event of any breach of any condition prescribed in terms of sub-rule (2).”

Based on the abovementioned model pet rule it is clear that both owners and occupiers are entitled to request permission to keep a pet. It is far more reasonable and inclusive to give all owners and tenants the opportunity to request trustee consent. The trustees should then apply their minds to the individual requests and consider the circumstances of each case. The fact that it is a tenant should be irrelevant in the consideration. The trustees can then impose reasonable conditions when granting their consent, and could always withdraw their approval when the conditions are breached.

Ultimately Prescribed Management Rule 69 states that the rules and the duties of owners in relation to the use and occupation of sections and common property are binding on owners, their lessees and other occupants of sections. It is the duty of an owner to ensure that his or her tenants and other occupiers, including employees, guests and their family members, comply with the rules. This is a partial re-statement of section 35(4) of the Act, which provides that a scheme’s rules “bind the body corporate and the owners of the sections and any person occupying a section“.

I suggest that the rules address the specific actions or behaviour, rather than to target the tenants with blanket bans or overly restrictive rules. To make a rule that unfairly restricts the tenants would, in my view, be inherently discriminatory and in conflict with the spirit and purpose of the Constitution.

Trustees Fiduciary Relationship With The Body Corporate

In this post from Paddocks (Thinking inside the box) we look at the importance of the legal and moral relationship trustees and the body corporate members.

Paddocks Article

Each trustee of the body corporate stands in a fiduciary relationship to the body corporate, and its members. Section 40 of the Sectional Titles Act 95 of 1986 (“the Act”), defines this important type of relationship by placing a fiduciary duty on the trustees to:

• Act honestly and in good faith;
• exercise their powers to manage or represent the body corporate, in the interest and for the benefit of the members of the body corporate;
• not to act without or exceed their powers as set out in the Act; and
• avoid a conflict of interest.

Trustees shall further avoid any material conflict between their own interests, and those of the body corporate. For example, in situations where a trustee may acquire a financial or any other type of personal benefit from a trustee decision, the trustee shall disclose their conflict of interest or potential conflict of interest, and recuse themselves from any decision, which directly or indirectly personally involves them. Where a trustee fails to disclose a (potential) conflict of interest, and it becomes known to the body corporate that the trustee has an undisclosed interest in the contract entered into, the contract may be voidable at the option of the members of the body corporate, unless a Court, upon application, orders that the body corporate is bound to the operation of the contract.

Should a trustee breach any duty arising from their fiduciary relationship to the body corporate, through their mala fide (fraudulent) or grossly negligent act or omission, they shall be liable to the body corporate for any loss suffered as a result by the body corporate, and any resultant economic benefit derived by them.

A trustee’s conduct does not constitute a breach of a fiduciary duty if the conduct was authorised (before or after) by the written approval of all the members of the body corporate, who are aware of all the material facts of the conduct.

In terms of Prescribed Management Rule 12 of Annexure 8 of the Regulations to the Act, the trustees shall be indemnified by the body corporate against all costs, losses, expenses and claims, which they may incur or become liable for, by reason of any act done or omission by them, in the discharge of their duties. This indemnification applies, except in so far as the act or omission was fraudulent or grossly negligent.

It is the duty of the trustees to pay the indemnity from the funds of the body corporate, or to ensure that there is fidelity guarantee in place, which will be used to refund any loss of monies belonging to the body corporate, or for which it is responsible, as a result of fraud or dishonesty committed by any trustee.