Useful tips for repairs and maintenance

Please note that this guideline is merely to assist the Trustees when making decisions regarding the repairs and maintenance of the scheme, very often a precedent has been set with regards to some issues, and these, as long as they are both reasonable and within the ambits of the Acts, may be applied in future cases.

Remember that when making decisions the Trustees are setting precedents all the time.

Each case should be based on its merits, and the Trustees are often required to use their discretion when deciding how to go about a particular task, and how the costs thereof will be allocated. There are many 'grey' areas when dealing with Sectional Title schemes and the differences between owner and body corporate costs.

The Body Corporate’s obligations in general:

The body corporate is responsible for the repairs and maintenance and upkeep of common property.

All pipes, ducts, wiring etc. for the common property, or which services more than one unit must be maintained by the body corporate.

The Owner’s obligations in general:

The owner must maintain and keep in good state his section.  He must also keep neat and tidy any part of the common property to which he has a right (i.e. exclusive use areas – such as gardens, patios, balconies, parking areas, garages etc.).

The owner is responsible for the costs and remedy of all damages to his section, however, if the damage is caused as a result of an external factor, then the owner may have a claim against another owner and or the body corporate. 

Note:

Trustees should be wary of involvement in disputes between owners. Such matters should be referred to the Ombud, via CSOS.  The body corporate does however get involved if the costs of repair of the damage of the affected section is claimed via the body corporate insurance policy.

Specifics:

Window Frames:

The costs of replacement/repair is generally split on a 50/50 basis between owner and body corporate.  If the repair/replacement to the frame is as a result of owner’s negligence, then the body corporate could refuse to pay half the costs. By the same token, if the repair/replacement is as a result of the body corporate’s negligence, then the owner could refuse to pay half of the costs.

This is where the question of precedence is very important. Some schemes have resolved that owners replace/repair their windows at their own expense.

Suggestion: It is often best to stick to the 50/50 split, as often negligence is difficult to prove.

Window Panes:

This is almost always a cost for the owner. There are a exceptions, but they are few and far between.

Broken panes as a result of an insured event are often not worth claiming for, as the cost of the excess outweighs the cost of replacement. In many instances where panes are broken as a result of wind, the owner did not properly close or tighten the window.\

Suggestion: It is best to adopt a policy of owners pay for panes and frames are split on a 50/50 basis.

Geysers:

The Act points out that if a hot water installation services only one unit then the maintenance of that installation is for the owners’ account. But having said that geysers are also fixtures.

Geysers are, more often than not, included in the insurance policy as they are fixtures. 

All insurance policies differentiate between burst and leaking geysers (the same rule applies for all water, sewerage and drainage pipes too).  Any consequential damage caused as a result of either a leaking or a burst geyser is covered under the insurance policy.

If a geyser bursts, the owner may claim from the insurer, and will be liable for the excess, which may be determined on the age of the geyser (on a sliding scale).

Arguments often ensue regarding excesses, but the answer is that if a member is claiming, he’s likely due to pay an excess.

Suggestions:

If a geyser bursts:

1. Get the owner to have a new geyser installed

2. Claim from the insurer

3. Claim for any consequential damage, if applicable

4. Get the owner to pay 100% of the excess in terms of the claim

If a geyser leaks:

1. Get the owner to have the geyser repaired

2. Claim for any consequential damage, if applicable

3. Check if geyser repair is covered by the insurance policy, if not the owner covers the costs of repair

4. The owner pays the excess of the consequential damage, if applicable

Replacing geysers prior to them bursting or leaking is for the owner’s own account.

Doors:

All internal doors are to be repaired and maintained by the owner.

Doors leading on to the common property from any section forms the median line and thus the cause of the damage/repair must be determined, in order to determine liability and responsibility.  If same cannot be determined, it may be an idea to apply the 50/50 rule and may be attended to on the same basis as windows.

Suggestion: External doors should be replaced/repaired on a 50/50 basis, and this includes doors to common property or to exclusive use areas, unless the rules, specifically, state otherwise.

Trees:

All trees on common property to be maintained/removed by the body corporate.

Trees in exclusive use areas to be maintained by the owner enjoying the rights to that area, but removal (as the roots are actually in common property) should, in effect, be removed by the body corporate.

Remember that removal of trees does interfere with the harmonious appearance of the scheme and should only be done if necessary.

Regular or routine maintenance that should be undertaken by Trustees:

Annual:

• Rain gutters: Inspect for secure fastening and clean out

• Roofs and Flashing: Inspect and repair

• Water Heaters: Inspect, drain and descale

• Fire Extinguishers: Inspect and recharge

• Smoke Alarms: Inspect and test battery

• Storm Drains: Inspect and clean

• Lawn Sprinklers: Inspect, test, replace heads, and reset timers

• Exterior Doors: Inspect weather stripping, thresholds, hinges, door closers and locks

• Parking Lot: Inspect for cracks and potholes

• Balcony and Stairwell Railings: Inspect for secure fastening

• Exterior of buildings: Inspect for wood rot, loose or damaged trim, paint deterioration and loose or damaged sidings

• Audit of the lifts, if applicable, by the service provider

• Tree trimming

• Drain/stack pipe cleaning and clearing of roots that may damage the drains

Quarterly:

• Swimming Pool: Inspect filters and pumps, oil and adjust

• Exterior, Common Area and Signage Lighting: Inspect and adjust timers or photocells.

• Pest control

• Servicing of the electric fence, including removing/cutting back vegetation that may damage the fence

ALWAYS REFER TO THE REGISTERED RULES AND SECTIONAL PLANS IF UNSURE!

VAT and Levies

The recent change in the VAT rate, from 14 to 15 percent, prompted a revisit of the issue around VAT, specifically with regards to levies in body corporates, share-block companies and home owners or property owners associations in South Africa.

According to Martin Bester, Managing Director of Intersect Sectional Title Services, a subsidiary of the Spire Property Group, levy income at body corporates, share-block companies or home owners or property owners associations (except those created for managing time-share schemes) is exempt from VAT, provided such schemes supply services to their members and the costs for these services are paid from levy fund contributions received from members.

However, such schemes may apply to SARS for voluntary registration as VAT vendors. 

This would typically apply to schemes of a mixed-use, commercial, industrial and or retail nature.  Very few residential schemes would warrant voluntary VAT registration.

Intersect manages several VAT registered schemes, including industrial business parks, commercial office parks, mixed-use high-rise developments and sectional title registered hotels. 

Use groundwater sparingly!

The City of Cape Town has urged residents to use boreholes and well-points responsibly and sparingly, as this is not an unlimited resource.

If too much groundwater is extracted too quickly it may become depleted.

For this reason, the City is recommending that customers with groundwater restrict watering to the hours prescribed and limit watering to the early mornings and/or late evenings to avoid evaporation.

The City though has indicated that it would be lobbying national government to more tightly regulate this resource for domestic use.

Residents have also been reminded that, once installed, boreholes need to be registered, and may have to be fitted with meters to monitor usage.

Intersect launches "Go-Green!" option

Intersect Sectional Title Services has launched a comprehensive management service to both Green Star rated buildings, as well as any building seeking to improve its environmental performance.

Intersect works in conjunction with the Body Corporate and its buildings' occupants and service providers to align the buildings' environmental performance against the applicable Green Star rating tool (if certified) and or the Memorandum of Understanding (MOU) entered into.

Once a green star rated building has either been developed or retrofitted with energy efficient systems and/or along carbon footprint reducing lines, the building must be managed to ensure sustainability and maximum benefit of the infrastructure and measures put in place.  

Property management therefore plays a key role reducing a building's carbon footprint, and Intersect is the 1st property management company to launch a green management option to the sectional title market in South Africa.

Two documents are signed at inception when appointing Intersect to manage a building using our Go-Green! option, a management agreement and a MOU, both of which are aligned to green principles and to reducing the carbon footprint of the building.

Of course, the success of such initiatives relies on the co-operation of all stakeholders within the building, including the management team, staff, service providers and occupants.  Intersect's Go-Green! offering seeks to resolve the management aspect and to guide the rest of the stakeholders to achieve the goals set out in the MOU. 

If you are invested in or are developing/have developed a green star rated building, in the sectional title arena, then look no further than Intersect to tick the management box of your rating tool.

Level 6 Water Restrictions, effective 1 Jan 2018

RESTRICTIONS APPLICABLE TO ALL CUSTOMERS

• No watering/irrigation with municipal drinking water allowed. This includes watering/irrigation of gardens, vegetables, agricultural crops, sports fields, golf courses, nurseries, parks and other open spaces. Nurseries and customers involved in agricultural activities or with historical gardens may apply for exemption. For more information, visit www.capetown.gov.za/thinkwater.

• The use of borehole/wellpoint water for outdoor purposes, including watering/ irrigating and filling/topping up of swimming pools, is strongly discouraged in order to preserve groundwater resources in the current dire drought situation. Borehole/wellpoint water should rather be used for toilet flushing.

• All boreholes and wellpoints must be registered with the City and must display the official City of Cape Town signage clearly visible from a public thoroughfare. Visit www.capetown.gov.za/thinkwater for how to register.

• All properties where alternative, non-drinking water resources are used (including rainwater harvesting, greywater, treated effluent water and spring water) must display signage to this effect clearly visible from a public thoroughfare. Visit www.capetown.gov.za/thinkwater for further information.

• No topping up (manual/automatic) filling or refilling of swimming pools with municipal drinking water is allowed, even if fitted with a pool cover.

• The use of portable or any temporary play pools is prohibited.

• No washing of vehicles (including taxis), trailers, caravans and boats with municipal drinking water allowed. These must be washed with non-drinking water or cleaned with waterless products or dry steam cleaning processes. This applies to all customers, including formal and informal car washes.

• No washing or hosing down of hard-surfaced or paved areas with municipal drinking water allowed. Users, such as abattoirs, food processing industries, care facilities, animal shelters and other industries or facilities with special needs (health/safety related only) must apply for exemption. For more information, visit www.capetown.gov.za/thinkwater.

• The use of municipal drinking water for ornamental water fountains or water features is prohibited.

• Customers are strongly encouraged to install water efficient parts, fittings and technologies to minimise water use at all taps, showerheads and other plumbing components.

RESTRICTIONS APPLICABLE TO RESIDENTIAL CUSTOMERS

• All residents are required to use no more than 87 litres of municipal drinking water per person per day in total irrespective of whether you are at home, work or elsewhere. Therefore, a residential property with four occupants, for example, is expected to use at most 10 500 litres per month.

• Single residential properties consuming more than 10 500 litres of municipal drinking water per month will be prioritised for enforcement (see note 1). Properties where the number of occupants necessitates higher consumption are encouraged to apply for an increase in quota. For more information, visit www.capetown.gov.za/thinkwater.

• Cluster developments (flats and housing complexes) consuming more than 10 500 litres of municipal drinking water per unit per month will be prioritised for enforcement (see note 1). Cluster developments with units where the number of occupants necessitates higher consumption are encouraged to apply for an increase in quota. For more information, visit www.capetown.gov.za/thinkwater.

• You are encouraged to flush toilets (e.g. manually using a bucket) with greywater, rainwater or other non-drinking water.

• No increase of the indigent water allocation over and above the free 350 litres a day will be granted, unless through prior application and permission for specific events such as burial ceremonies.

RESTRICTIONS APPLICABLE TO NON-RESIDENTIAL CUSTOMERS

• All non-residential properties (e.g. commercial and industrial properties, schools, clubs and institutions) must ensure that their monthly consumption of municipal drinking water is reduced by 45% compared to the corresponding period in 2015 (pre drought). (See note 1 below.)

• All agricultural users must ensure that their monthly consumption of municipal drinking water is reduced by 60% compared to the corresponding period in 2015 (pre drought). (See note 1 below.)

• The operation of spray parks is prohibited.

• No new landscaping or sports fields may be established, except if irrigated only with non-drinking water.

• For users supplied with water in terms of special contracts (notarial deeds, water service intermediaries or water service providers), the contract conditions shall apply.

NOTE 1: Failure to comply will constitute an offence in terms of the City’s Water By-law, 2010 (as amended). The accused will be liable to an admission of guilt fine and, in accordance with section 36(4), an installation of a water management device(s) at premises where the non-compliance occurs. The cost thereof will be billed to the relevant account holder. Customers with good reason for higher consumption need to provide the City with motivation to justify their higher consumption.m Other restrictive measures, not detailed above, as stipulated in Schedule 1 of the Water By-law, 2010 (as amended) still apply. Exemptions issued under Level 4B and 5 restrictions still apply, subject to review with the possibility of being revoked. Water pressure has been reduced to limit consumption and water leaks, and such may cause intermittent water supply.

For further information visit www.capetown.gov.za/thinkwater or contact the City of Cape Town at water@capetown.gov.za

Can Sectional Title schemes reduce water consumption?

Yes we can!

The Western Cape is experiencing its worst water crisis in recorded history.  So, what can we do as residents and owners and property managers, within the sectional title arena?

At Intersect, we have been involved in several water-saving measures across our buildings.  Not the least of which is education.  By circulating information from, inter alia, the City of Cape Town to our clients as well as informative notices on saving water, we are able to increase the awareness of the water scarcity and the effect of same should every resident not put measures in place to save every drop.

More capital-intensive projects such as rain-water harvesting, ground-water extraction, filtration and waterless ablutions have also been applied across several of our buildings.

Softer targets, such as intelligent metering, immediately repairing damaged water lines and apparatus as well as switching off water-features and irrigation, have all contributed to an overall reduction in water consumption of around 50% across our portfolios.

Much more is required to ensure a sustainable water resource, but, with the City’s ongoing initiatives, as well as the residents’ conscientious approach to water usage, matters are certainly improving.

In sectional title, the trustees are responsible for the control and management of the common property, and whilst the water is not common property - but rather a resource managed by the State - the water does reticulate through the common property water pipes and meters, and therefore the trustees should play a more active role in the management thereof. 

Intersect Sectional Title Services assists the trustees in any way it can.

For more information visit the City of Cape Town’s Think Water site by clicking the link.

Sectional Title and HOA Insurance matters

SECTIONAL TITLE:

Insurance is a legal requirement in terms of the Sectional Titles Schemes Management Act and its applicable regulations (“the Act’’). The trustees are required to ensure that insurance is in place.  Every owner in the scheme, by default, pays part of the cost (premium) of this insurance and the premium is included in the budget for the scheme, however, where the replacement value of a specific unit has been increased beyond that provided for by the trustees, usually at the request of the owner or bondholder, an additional premium will be payable and recovered from the owner concerned.

Generally, the policy covers the body corporate for the full replacement value of all or any of the sections and the common property in the scheme.

The purpose of sectional title insurance is to protect against loss due to a sudden and unforeseen event - not due to ordinary wear and tear or damages that occur over a period of time or due to poor design or construction.    Sectional title insurance does not cover the contents, personal belongings or movables - even if these are lost or damaged due to one of the ‘insured events’ covered by the policy.  Owners and/or tenants need to take out their own, individual, insurance policies to cover such items.

So what’s insured?

In general:

• The building(s)

• The common property

• Fixtures and fittings, including within sections

• Hot water installations

• Any other peril resolved by the members of the body corporate or the holders of mortgage bonds, provided the requisite rules are applied

Against which insured perils?

In general:

• fire, lightning, explosion and smoke;

• riot, civil commotion, strikes, lock-outs, labour disturbances or malicious

• persons acting on behalf of or in connection with any political organisation;

• storm, tempest, windstorm, hail and flood;

• earthquake and subsidence;

• water escape, including bursting or overflowing of water tanks, apparatus or pipes;

• impact by aircraft and vehicles; and

• housebreaking or any attempt thereat

• any other peril resolved by the members of the body corporate or the holders of mortgage bonds, provided the requisite rules are applied

Other cover, such as public liability, trustee liability, employer’s liability, machinery breakdown, loss of money, the cost of alternative accommodation or loss of rent for owners whose properties are uninhabitable for a certain period, demolition costs, inflation and escalation and VAT may also be included.

Who pays the excess?

Basically, if the claim is for loss or damage to common property then the body corporate pays the excess.  If, however, a claim is made for damage or loss to any part of any section, then the owner of that section is liable for an excess.

Excesses vary from policy to policy are negotiated with the broker/insurer at renewal.

Do I pay an excess even if a 3rd party is to blame for the loss or damage?

Yes.

The Act states the following regarding excesses:

Regulation 23(2)(b):

A member is responsible –

(b) for any excess amount that relates to damage to any part of the buildings that member is obliged to repair and maintain in terms of the Act or these rules.

Should an owner believe that the loss or damage was caused by a 3rd party, even if that 3rd party is the body corporate, and that the excess should be covered by same, this argument will not be resolved by Intersect and or the Trustees.  The excess remains applicable and payable by the owner, in terms of the above regulation, and remedy, if any, may then be sought, separately, and directly by the owner against the party(ies) concerned.

What if several units are damaged in one insured event?

As per regulation 23(2)(b), each owner will be liable for an excess.  However, the insurer may apply a single, or gross, excess, in which case the discretion of the trustees may be called upon.  As a rule of thumb, though not regulated, the ratio of each owner’s individual claim to the total claim for the event may determine the quantum of the excess to be applied, i.e. the total excess applied will be split amongst the affected owners in proportion to the value of each owner’s claim.

HOMEOWNERS ASSOCIATIONS:

Insurance is covered under the Constitution or Memorandum of Association, and any applicable regulations or rules thereto. The trustees are required to ensure that insurance is in place for the common property, only.

Every owner in the scheme, by default, pays part of the cost (premium) of this insurance and the premium is included in the budget for the scheme.

Generally, the policy covers the Homeowners Association for the full replacement value of the common property in the scheme.

Each owner is responsible for the insurance, both house-owners and house-holders insurances, for his or her erf, including any development thereon.

Property Practitioners Bill

Another new Act is about to enter the real estate industry, currently under draft as the Property Practioners Bill (the Bill).

The Bill was published on 31 March 2017 in Government Gazette 40733 (Notice Number 246) and a call for submissions and feedback, within 30 days thereof, was made.

In essence, the Bill, once passed, will replace the Estate Agency Affairs Act and replace the Estate Agency Affairs Board (EAAB), being the current regulatory body for the profession. The new body will be the Property Practitioners Regulatory Authority (the Authority), which will establish its own board and will be governed by and act through same.

A property practitioner includes managing agents, as defined in the Bill, as well as, inter alia, estate agents, rental agents and bond originators.

The Authority will perform much the same role as the EAAB, by regulating the conduct of the property practitioners and ensure that the Act is complied with.

But it’s not just a case of changing the Act and the regulatory board, a few other changes are envisaged through the new bill.

Transformation in the industry has been identified as a need and is an example of one such change from the old Act, also an Ombud service will be established to deal with complaints lodged in terms of the Act.

But what about the Estate Agency Fidelity Fund – a fund currently in place to protect consumers against pecuniary losses caused by registered estate agents?  This fund will continue to operate under the Authority and similar rules in terms of claims shall apply.

As with the old Act, every property practitioner must operate trust accounts (one or more), be registered with the Authority, obtain an annual fidelity fund certificate and comply with the educational requirements set out.

Several managing agents have, hitherto, not registered with the EAAB, given the relatively broad definitions in the current Act, however this is not correct.  Managing agents are estate agents by definition, and therefore must all register and comply with all aspects of the Act, i.e. must operate a trust account and must obtain annual fidelity fund certificates.  Any deviation from this may prejudice the consumers’ ultimate protection against pecuniary losses.

Intersect Sectional Title Services is registered with the EAAB, operates trust accounts in terms of the Act, holds a valid fidelity fund certificate and its Principal holds an individual fidelity fund certificate as well.  Moreover, Intersect holds insurance cover for professional indemnity, Directors and Officers liability and public liability, to comprehensively protect all its clients.

Two new funds to maintain!

The recently promulgated Sectional Titles Schemes Management Act [STSMA], provides for sectional title schemes to open, administer and maintain two separate funds, a reserve fund (refer to section 3(1)(b) of the STSMA) and an administrative fund (refer to section 3(1)(a) of the STSMA).

The administrative fund must be, reasonably, sufficient to cover the estimated annual operating costs of the body corporate.  This must be aligned with the operational budget approved by the members at an AGM, and cover the costs of the repair, maintenance, management and administration of the common property and payment of, inter alia, utilities, salaries, services and the insurance premium.

The reserve fund, on the other hand, must, in summary, be used for the implementation of the maintenance, repair and replacement plan [MRRP] of the body corporate. 

The MRRP too is approved by the members at an AGM, and forecasts the maintenance, repair and replacement of common property buildings, plant and equipment over a 10-year period.  Trustees would be well advised to seek the assistance of professionals when creating this plan at the outset, so as to, reasonably, pre-empt works requiring attention over this period and cost accordingly.

The MRRP, as well as its associated fund, is new to sectional title, and this year sees a change in the typical AGM agenda and order of business, to allow for the consideration and approval of this new plan and associated budgets.  Thereafter, same must be maintained and tracked on an annual basis.

At Intersect we have created separate ledgers in the management accounts of each of the body corporates we administer, as well as separate investment accounts at financial institutions, to administer, maintain and track these funds for our clients.

At the same time the STSMA, as well as the Community Schemes Ombud Services Act (promulgated in October 2016), provides for each body corporate to hold sufficient fidelity insurance to cover the amounts held in these funds from time to time.  This too Intersect has put in place for each of its clients.

Intersect Sectional Title Services is the communal schemes management specialist of the Spire Property Group, a national property management company providing comprehensive property services to residential, retail, commercial and industrial property owners.

Intersect operates out of Rondebosch in Cape Town and may contacted on 021 659 5965 or by visiting www.intersect.co.za.

Getting to grips with the two new Acts affecting Sectional Title and Other Communal Schemes

The two new Acts affecting communal schemes, such as sectional title, share-block and owners’ associations, were enforced on 7th October 2016.  These are The Sectional Titles Schemes Management Act, no. 8 of 2011 (STSMA), and The Community Schemes Ombud Service Act, no. 9 of 2011 (CSOSA).  

Many trustees and managing agents alike are still getting to grips with the recent changes brought about by the new acts, but a few immediate and fundamental duties have been placed on trustees in terms thereof, and these were to be implemented within prescribed time-frames. 

It is important to note that not all provisions of both acts affect all communal schemes, as home owners’ & property owners’ associations, for instance, are not subject to the STSMA, however all communal schemes are subject to the CSOSA. 

Below I highlight a few pertinent duties that were imposed and what we at Intersect have done to assist our clients with their compliance. 

Reserve and Administrative funds: 

The STSMA (and its regulations and prescribed management rules), provides for the operation of two separate funds, a maintenance reserve fund and an administrative fund.  In terms thereof Intersect has established both funds in its clients’ sets of accounts and opened separate trust investment bank accounts for each. 

In brief the maintenance reserve fund must be used for the implementation of the maintenance, repair and replacement plan (MRRP) of the body corporate (basically a plan of foreseen repairs, maintenance and replacement of plant and or equipment, over a 10-year cycle), whereas the administrative reserve is the reserve maintained to reasonably cover the estimated annual operating costs for the balance of repairs and maintenance, payment of services, insurance and administration - the latter has always been a requirement for body corporates. 

CSOS registration: 

Intersect obtained, completed and submitted all the requisite forms, rules and governance documentation to register each scheme with the Ombud, by the prescribed date. Fidelity insurance: Over and above the fidelity guarantee, already in place on all Intersect’s clients’ insurance policies, the CSOSA provided for additional fidelity insurance to be taken out by the trustees, thereby ensuring that fidelity cover is in place, equal, at least, to the total cash reserves held by the community scheme at any point in time. 

Intersect sourced the most comprehensive policy, with the most favourable terms and conditions, for all its clients and rolled same out to ensure compliance in the unlikely event of a fidelity related claim. 

Maintenance, Repair and Replacement Plan: 

Intersect assisted its clients by drafting templates for the 10-year MRRP to be presented at the 1st AGM after the 7th of October 2016.  On approval by the scheme’s members, the plan would become effective and the subsequent additional levy, if any, applied.  

All funds received pursuant of this provision will be directly transferred to the MRRP’s separate trust investment account.  

Intersect Sectional Title Services is the communal schemes management specialist of the Spire Property Group, a national property services company providing comprehensive property services to residential, retail, commercial and industrial property owners. 

Intersect operates out of Rondebosch in Cape Town and may be contacted on 021 659 5965 or by visiting www.intersect.co.za. 

The Sectional Title Schemes Management Act and The Community Schemes Ombud Service Act - Update

By now many owners in joint property ownership schemes such as sectional title and home owners’ associations are aware that certain regulations are due to change. 

Martin Bester, Managing Director of Intersect Sectional Title Services, says that since 2011 we have been notified that two new Acts will be promulgated - the Sectional Titles Schemes Management Act 8 of 2011 (STSMA) and the Community Schemes Ombud Service Act 9 of 2011 (CSOSA).

These have now been signed into law by the President, and are effective from 7th October 2016.

So what will change and what will stay the same?

According to Bester, from a sectional title point of view the current statute (Sectional Titles Act, No.95 of 1986 (STA)) will remain, but will be primarily focussed on the establishment, registration, surveying and technical aspects of sectional title schemes.  Whereas the management aspects, hitherto included in the STA, have been removed and placed exclusively in the STSMA.

Bester states that in essence the STSMA seeks to deal with the management aspects only, and streamline certain processes, and while it retains the nature of these aspects from the STA it does contain a few notable changes, inter alia:

1.                   Maintenance reserves:

The body corporate will now be required to establish and maintain a reserve fund sufficient to cover the cost of future maintenance and repair of the common property.  Of course no one knows what these future costs will be, so the STSMA sets out the following formula based on total levy income per annum:

a)      Less than 25%:

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;

b)      Greater than 25% but less than 100%:

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;

c)       Greater than 100%:

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.

2.                   Proxies & Voting:

“Whereas before a person could hold numerous proxies, as of the date of implementation of the STSMA a person may not act as proxy for more than two members,” says Bester.

“Further, when voting by means of a show of hands, the STSMA now provides for each member to only be entitled to one vote, regardless of the number of sections he/she owns in the scheme.”

3.                   Rights of extension by the Developer:

“The STSMA now provides for the body corporate to extend the time limit of a developer’s right of extension, by means of passing a unanimous resolution, in the form of a notarial agreement.”

4.                   Extensions of a section by an owner:

“The STSMA seeks to tidy up the old provisions of the STA in this regard by ensuring that the duty rests on the owner to obtain the consent of the members (by way of a special resolution) before proceeding with the extension and to have same surveyed and registered,” advises Bester.

“It further provides that the members are not compelled to grant their consent (some ambiguous wording exists in the current statute in this regard).”

5.                   Subdivision and consolidation of sections:

“The STSMA now specifically provides for an application procedure should owners wish to subdivide or consolidate sections, whereas in the STA no such application procedure is provided for.”

6.                   Community Schemes Ombud Act 9 of 2011:

Bester goes on to explain that this new Act affects all joint property ownership schemes and seeks to provide a mechanism (an Ombud service), to tackle all disputes in sectional title, home owners’ associations and share block developments etc., in accordance with a prescribed procedure. 

“Moreover, from a sectional title point of view, the CSOSA provides for the examination, approval (or otherwise), and filing of rules and rule amendments, hitherto registered and kept at the Deeds Registry.”

“The managing agent and/or trustees will have to furnish the Chief Omdud with certain information (Community Schemes Governance Documentation) within a prescribed period of time. There will also be a levy, payable by every member of every scheme, of up to R40.00 per unit per month, whichwill have to be collected by the body corporate and paid over to the Chief Ombud, as prescribed.  So expect an additional levy within the next few months!” warns Bester.

General:

“Naturally there are many more changes and these will no doubt be tested and amended as required over time, however it is hoped that the new regulations will streamline the day to day management aspects of communal living schemes.  Also certain provisions have been set aside for up to 90 days to allow for logistical implementation,” concludes Bester.

Intersect supports special needs school

Following a plea, heard on a local talk radio station, for musical equipment needed by the Oasis Special School in Belhar, Cape Town, the Spire Property Group of companies responded and donated goods to the school.

Mr Martin Bester, Managing Director of Intersect Sectional Title Services and Intersect Property Sales and Rentals, both subsidiaries of the Spire Property Group, heard a plea on Cape Talk radio one morning requesting a keyboard or piano for a school which educates mentally and physically handicapped children in the Cape Flats.

“After tracking the school down I was introduced to Mrs Martin, who then explained that she was the voice on the radio and described the school and its needs to me. I knew then that we had to do something to assist.” says Bester, who then arranged with the CEO’s of Spire Property Management, Tower Property Fund and the Spire Property Group to collaborate and provide the school with much needed equipment.

“We ascertained that not only did the school require a piano but also other musical instruments such as drums, maracas and tambourines as the children love music but the school had run out of equipment - and funds are always in short supply and prioritised elsewhere” continued Bester, “so we provided same and, at the same time, enquired as to what other equipment was needed by the school. Ultimately, we provided the school with a new refrigerator and toaster for the kitchen, as well as ironing boards, irons, cooking utensils, baking equipment, clothing and various other items for the school’s domestic science room, which was in much need of new equipment.”

The Oasis Special School has offered specialised professional education to mentally handicapped learners since 1957, irrespective of their cultural background, with a view to providing sufficient opportunities and experiences for the learners so that they are able to develop to their full potential and to be successfully integrated into the community.

More details about the school may be obtained via its website at http://oasisspecialschool.yolasite.com/, and any assistance that can be provided to assist this worthy initiative would be hugely appreciated by the teachers, volunteers and, of course, the learners.

The Sectional Title Schemes Management Act & The Community Schemes Ombud Services Act

On 7 October, 2016 two new acts affecting Sectional Title and Community Schemes in South Africa, being the Sectional Titles Schemes Management Act and the Community Schemes Ombud Services Act, were implemented. 

On our website we discuss these acts and the material changes that owners can expect. 

Here are the applicable regulations: 
CSOS Regulations
STSMA Regulations
 

Fiduciary relationship of Trustees in Sectional Title Schemes

All sectional title schemes are managed, controlled and administered by a body corporate, the members of which are all owners within the scheme, and these functions and powers are performed and exercised on a day to day basis by the trustees. 

Trustees are elected and appointed at each annual general meeting by the members, and must operate within the limitations imposed in the Sectional Titles Act, subject to any restrictions imposed at a general meeting of the owners and in the management rules of the scheme. 

The management rules, which regulate the management and administration of a scheme and which sets out the powers and responsibilities of the trustees, may be added to, amended or repealed by unanimous resolution of the members but one critical element thereof is the fiduciary relationship with the body corporate that every trustee stands in, once appointed to hold office until the next annual general meeting. 

This relationship demands that every trustee acts honestly, in good faith and may not exceed the powers granted by the sectional titles act, the rules and/or the owners at a general meeting, and must exercise these powers in the interest and for the benefit of the body corporate as a whole. 

Moreover, a trustee must avoid any and all material conflicts between his or her own interests and those of the body corporate. In particular, a trustee may not derive any personal benefit from the body corporate or from any other person if such benefit is obtained in conflict with the interests of the body corporate. 

Should any possible or suspected conflict exist, the trustee is obliged to notify all other trustees of the nature and extent thereof.  An example of this is any direct or indirect material interest the trustee may have in any contract entered into by the body corporate.  Should the trustee not disclose such conflicts, then any affected contract entered into is voidable should the members so decide. 

If a trustee breaches his or her fiduciary duties by an act or omission that is grossly negligent or performed in bad faith, he will be liable to the body corporate for any resultant loss suffered by the body corporate or any economic benefit derived by the trustee.  

The sectional titles act however does provide indemnity, for trustees, for acts or omissions that result in a loss for which the body corporate becomes lawfully liable, where gross negligence or bad faith is not proven.  Moreover, and on a similar basis, the insurance policy of the body corporate should hold cover for trustees’ indemnity as well. 
 

New Acts regarding Joint Property Ownership Schemes

By now many owners in joint property ownership schemes such as sectional title and home owners’ associations are aware that certain regulations are due to change.  Since 2011 we have been notified that 2 new Acts will be promulgated, the Sectional Titles Schemes Management Act 8 of 2011 (STSMA) and the Community Schemes Ombud Service Act 9 of 2011 (CSOSA). 

These have now been signed into law by the State President, however, as at the date of writing this article, neither Act is yet in operation, though it is believed that these will be effected in the 1st or 2nd week of October 2016 - once published in the Government Gazette. 

So what will change and what will stay the same? 

 From a sectional title point of view the current statute (Sectional Titles Act, No.95 of 1986 (STA)) will remain but be primarily focused on the establishment, registration, surveying and technical aspects of sectional title schemes, whereas the management aspects, hitherto included in the STA, have been removed and placed exclusively in the STSMA. 

In essence, the STSMA seeks to deal with the management aspects only and streamline certain processes and while it retains the nature of these aspects from the STA it does contain a few notable changes, inter alia: 
 
1. Maintenance reserves: 

The body corporate will now be required to establish and maintain a reserve fund sufficient to cover the cost of future maintenance and repair of the common property.  Of course no one knows what these future costs will be, so the STSMA sets out the following formula based on total levy income per annum: 

a)   Less than 25%: 

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; 

b)   Greater than 25% but less than 100%: 

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; 

c)   Greater than 100%: 

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. 

 
 
2. Proxies & Voting: 

Whereas before a person could hold numerous proxies, as of the date of implementation of the STSMA a person may not act as proxy for more than 2 (two) members. 
Further, when voting by means of a show of hands, the STSMA provides now for each member to only be entitled to 1 (one) vote, regardless of the number of sections he/she owns in the scheme. 
 
3. Rights of extension by the Developer: 

The STSMA provides now for the body corporate to extend the time limit of a developer’s right of extension, by means of passing a unanimous resolution, in the form of a notarial agreement. 
 
4. Extensions of a section by an owner: 

The STSMA seeks to tidy up the old provisions of the STA in this regard by ensuring that the duty rests on the owner to obtain the consent of the members (by way of a special resolution) before proceeding with the extension and to have same surveyed and registered. 
It further provides that the members are not compelled to grant their consent (some ambiguous wording exists in the current statute in this regard). 
 
5. Subdivision and consolidation of sections: 

The STSMA now specifically provides for an application procedure should owners wish to subdivide or consolidate sections, whereas in the STA no such application procedure is provided for. 
 
6. Community Schemes Ombud Act 9 of 2011: 

This new Act affects all joint property ownership schemes and seeks to provide a mechanism (an Ombud service), to tackle all disputes in sectional title, home owners’ associations and share block developments etc., in accordance with a prescribed procedure.  

Moreover, from a sectional title point of view, the CSOSA provides for the examination, approval (or otherwise), and filing of rules and rule amendments, hitherto registered and kept at the Deeds Registry. 
The managing agent and/or trustees will have to furnish the Chief Ombud with certain information (Community Schemes Governance Documentation) within a prescribed period of time. 
 

There will also be a levy, payable by every member of every scheme, of up to R40.00 per unit per month which will have to be collected by the body corporate and paid over to the Chief Ombud, as prescribed.  So expect an additional levy within the next few months! 
 
General: 

Naturally there are many more changes and these will no doubt be tested and amended as required over time, however it is hoped that the new regulations will streamline the day to day management aspects of communal living schemes.  Also certain provisions have been set aside for up to 90 days to allow for logistical implementation. 

Intersect establishes Sales and Rentals division

Intersect Sectional Title Services has been providing specialised property management services to its clientele for the past 45 years, focusing on sectional title and home owners’ association management across the Western Cape.  

It seemed only fitting then that we provide sales and rentals services as well and thus Intersect Property Sales and Rentals has been established.
 
Intersect Property Sales and Rentals provides sales and rentals solutions in the residential property sector in the Southern Suburbs, City Bowl, CBD, Atlantic Seaboard and surrounding suburbs.   

Operating out of the trendy Cape Quarter Lifestyle Centre - situated at Dixon Road, Green Point - and with 45 years of sectional title expertise at hand, Intersect Property Sales and Rentals is perfectly placed to provide sales and rentals advice to its clientele. 

Intersect Property Sales and Rentals is an estate agency registered with the Estate Agency Affairs Board and is in possession of a valid fidelity fund certificate. Over and above the fidelity fund covered by the EAAB, Intersect Property Sales and Rentals also holds cover for professional indemnity and public liability. 
 
Visit www.intersect-sales.co.za for more information. 

Budgeting for Reserves in Sectional Title

At every annual general meeting of a sectional title scheme the members are required to approve and adopt a budget, presented to them by the trustees of the scheme. Once the budget is adopted the levies may be resolved and applied and, within 14 days of the annual general meeting being held, must then be confirmed to all members by the trustees. 

In the past providing for reserves to meet future repairs and maintenance requirements in the budget process has been loosely applied in sectional title as no statutory implications existed, short of the trustees’ being required to budget to meet the ensuing year’s commitments and to allow for reasonable contingencies.
  
It can be said that two schools of thought exist currently in this regard (1) to keep the levies as low as possible and to raise a special levy if and when required, or (2) to provide for the future repairs and maintenance now, thereby building a healthy cash reserve, and reducing the needs for future special levies. 

There are valid arguments for both above cases, however, once the new Sectional Schemes Management Act (2011) ‘the Act’ is promulgated (widely believed to be imminent), then the trustees will be required by statute to provide for a reserve for future repairs and maintenance. 
 
Section 3(1)(b) of the Act provides for the mandatory establishment of a reserve fund to cater for future repairs and maintenance and specifies the following: 

a)       If the amount of money in the reserve fund at the end of the previous financial year is less than 25 per cent 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 per cent of the total budgeted contribution to the administrative fund; 

b)      if the amount of money in the reserve fund at the end of the previous financial year is equal to or greater than 100 per cent of the total contributions to the administrative fund for that previous financial year, there is no minimum contribution to the reserve fund; and 

c)       if the amount of money in the reserve fund at the end of the previous financial year is more than 25 per cent but less than 100 per cent 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. 

At Intersect we have always advocated the provision of reserves and tried to strike a balance between the two arguments above.  As a result, most of the schemes we administer have healthy cash reserves. 
Although the Act is not yet law it is advised that trustees take the above into account when preparing the 2016 and 2017 budgets. 
 

Trusteeship in the Sectional Title environment

At every annual general meeting of a sectional title scheme a board of trustees is elected. This process is done by means of nomination. Contrary to popular belief trustees do not need to be owners in the scheme, however the nominator must be an owner. The Sectional Titles Act (ACT) though does prescribe certain conditions wrt trustees, most notably that a person cannot be nominated to act as a trustee if indebted to the body corporate. 

The trustee's role is principally to perform and exercise the functions and powers of the body corporate, subject to the provisions of the Act and any restriction and or directive imposed at an applicable AGM. This role however is broad and includes a myriad of functions, not the least of which are finance and levies, repairs and maintenance, enforcing the rules of the scheme and ensuring that adequate insurance is in place. 

Although managing agents may be employed to assist the trustees, and that certain duties may be delegated to them, the trustees are still ultimately responsible for the control and management of the body corporate, so any person considering accepting a nomination to act as a trustee should make themselves au fait with the basic provisions of the Act and be aware of what is expected of them. 

Having said that the Act does acknowledge that trustees are not necessarily professionals in this regard and therefore the Act indemnifies (refer Prescribed Management Rule12) the trustees against costs, losses, expenses and claims that may arise as a result of a trustee's actions, provided such action is both taken in good faith and does not constitute gross negligence. 

There are also several circumstances which could lead to the removal from office of a trustee, and these are more fully explained in Prescribed Management Rule 13 (Annexure 8 of the Act). 

The trustees should meet on a regular basis, quarterly meetings are often applied, to discuss the management accounts - particularly debtors, creditors, cash flow and performance to the approved budget. Other day to day issues such as repairs and maintenance and the enforcement of rules can be dealt with between the trustees and the managing agent, mostly by email, and ratified and recorded at the trustees' meetings thereafter. 

Insurance and the Commercial Sectional Title Scheme

The Sectional Titles Act [STA] does not differentiate between commercial, industrial, retail (collectively referred to as commercial) and or residential schemes, but it is safe to say that the STA was devised with residential schemes in mind as we estimate that +/- 70% of the sectional title schemes in the country are residential in nature. 

At Intersect our portfolio resembles this figure as we too have a 70/30 split between residential and commercial. 

A great many of our schemes are insured by 1 of the three larger insurers in the country and, based on the size of the book that we hold with them, we are able to negotiate the best rates and best cover for our clients. 

At renewal, we discuss the claims history of our mutual clients with the insurance brokers as well as changes in the market place that could affect each client, and apply the best-case scenario for each. 

Strictly speaking the sectional title policy covers the building and all fixtures and fittings such as roofs, walls, ceilings, floors and floorcoverings (if fitted), built in cupboards, basins, baths, toilets, doors and windows etc., as was delivered by the developer or as shown expressly on a sectional plan. 

But what about fixtures and fittings installed after that date or not reflected on a sectional plan (collectively known as non-standard improvements)? Of particular concern was the differentiation in commercial sections post a tenant installation, such as dry walling etc. 

After discussions with the aforementioned insurers we have negotiated that all policies under our management will be updated to include non-standard improvements, provided same is covered by the current sum insured for each section, and we would advise this to all commercial sectional title schemes. 

Having said that we also advise our commercial clients to review their internal fittings and fixtures (especially those with dry walling, plumbing etc. ) and estimate the replacement value of same and compare this to the most recent values as per the insurance policies. 

How many proxies may an individual hold?

How many proxies may be held by any one person at a meeting of sectional title owners?  

The answer is, at present, as many proxies as that person receives – unless the registered management rules state anything to the contrary (which is very rare). 

Confusion has developed recently as a result of the draft new legislation, being the Sectional Titles Schemes Management Act.  The draft new act states that a member may be represented in person or by proxy at a meeting, provided that a person must not act as a proxy for more than two members. 

However, the draft Act is not yet in force, and only recently (October 2015) been opened for public comment. 

Another important factor to remember about proxies is that if a person is representing a legal entity, i.e. a company, close corporation or trust, then the person will require a resolution to that effect, over and above the prescribed form of proxy issued by the convener of the meeting. 

So, until the new Act is promulgated, the status quo remains, i.e. a person may hold unlimited proxies, thereafter it may be limited to 2.